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Posted May 11th, 2009 by Charles Purdy

Weekly € rates and comments – week commencing 11th May 2009

At the start of last week sterling strengthened marginally against most currencies thanks to the improved confidence in the financial sector and renewed risk-appetite. The Bank of England (BoE) met on Thursday and despite rates being kept on hold at 0.5% as expected, sterling’s recent gains, especially against the €, unwound within just a couple of hours. This was due to the announcement to increase the level of quantitative easing by £50bn from the current level of £75bn. This week we have on Tuesday the release UK manufacturing data and UK trade data for March. Then on Wednesday we have both the unemployment figures for April and the release of the updated growth and inflation figures from the BoE. So a busy week for UK data and we wait to see if there are any “green shoots” to support sterling and perhaps even push it to higher levels.

The € had a good week last week and sits at €1.115/£1. The main event of last week was the widely anticipated decision from the European Central Bank (ECB) to cut their interest rates by 0.25 to 1%. As has been the case in recent months, it was as much the accompanying statement and sentiment of the members regarding future actions that drew attention. One member described the cut as ‘appropriate taking into account all available information’ which has been a clue in previous statements that there will be no intended change to this rate for some time. Further action from the ECB involved the purchase of €60bn ‘euro denominated covered bonds’ which will aim to support the mortgage lenders. Finishing last week on the front foot the euro has simply not capitulated as many analysts had predicted would happen at the beginning of the year. However, we will see the depth of the eurozone recession on Friday when France, Germany and the other eurozone countries release gross domestic product data for the first quarter. The data is not expected to good and in fact for Germany extremely weak. So we wait to see if the € can continue to hold its own.
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