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Posted May 19th, 2008 by Charles Purdy

Weekly € rates and comments – week commencing 19th May 2008

 
 

Steady week for sterling last week. This was even after the doom and gloom of the Bank of England’s economic forecast which showed increasing inflation and slower economic growth. The worst result possible. The effect of high inflation is that interest rate cuts become less likely. The market feels that we will see only two further 0.25% cuts this year which is hardly going to get the economy moving into overdrive. But at least it makes it clear to everyone the depths of the problems that exist and sterling can only move forward once this is clear to all.

 

Mixed economic news for the € which sits at €1.255/£1 inter bank. The German economy continues to move forward strongly whereas the Spanish economy has hit the buffers. Also inflation continued to be at the high end of the European Central Banks target. As such any cuts in Euro land interest rates in this current year are thought to be very unlikely. However, economic problems will increase as the year continues, which may well reduce inflation and then Euro land interest rates would be reduced. However, this is not going to be the short term scenario. So no significant weakness for the € short term.

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