Weekly Euro rates and comments - week commencing 1st October 2007

 

 

No major negative news last week to hurt sterling. In fact the Bank of England made £10bn available in short term funding and there were no takers. However the sight of queues outside of a British bank with savers desperately trying to get their money out has not inspired confidence. All in all a major mess created by the BOE and the Government. The BOE meets this week and we wait to see if they hold firm on interest rates or follow the example of the Fed and cut interest rates. The market expects them to hold firm. It will take a while for sterling to make a significant recovery especially against currencies such as the Euro. It certainly seems a good time to bring funds back to the UK.

 

The Euro has weakened slightly from its highs of early last week to €1.438/£1 inter bank. Economic data on the whole has been positive with German unemployment down, euro zone money supply growth remaining strong and inflation data making Euro interest rate cuts highly unlikely. However the strength of the € against the US$ means that exports are beginning to suffer and business confidence is weakening. The European Central Bank meets this week and the expectation is for them to keep rates on hold. However, the Euro is likely to remain strong for the short to medium term.  Sterling has regained some stability over the last ten days against the Euro but upside seems somewhat limited in the short term.