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Posted June 9th, 2008 by Charles Purdy

Weekly € rates and comments – week commencing 9th June 2008

 

No major movements for sterling in the last week, losing a bit of ground against some currencies and gaining a bit of ground against others. The Bank of England met and decided to keep interest rates on hold. This was very much as expected. The BOE’s choices are somewhat limited as UK inflation is way above target but at the same time the UK economy is suffering. UK unemployment figures are expected to see an increase this week. Once we see inflation start to pull back it is expected that the BOE will start to cut UK interest rates. Strangely this may be good for sterling as it will show that the prime objective is get the UK economy going again rather than fighting inflation.

 

The European Central Bank sits at €1.249/£1 inter bank. The ECB met last week and kept Euro land interest rates on hold. Again, this was as expected. However, the twist from the ECB was that were considering an increase in Euro land interest rates given the level of inflation. The trouble with Euro land is that there is a wide range of economic performance. Some countries, such as Germany are doing okay whereas others, such as Spain, have real problems. One size clearly does not fit all. I suspect an increase in Euro land interest rates will be counter productive and have a negative affect on the € medium term.

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