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Posted December 14th, 2009 by Charles Purdy

Weekly € rates and comments – week commencing 14th December 2009

Sterling had a mixed week last week losing ground against most currencies during the course of the week but regaining a bit of ground on Friday. The Chancellor held his pre-budget report mid week which seemed to be lots of smoke and mirrors but little content. He noted that the UK economy will contract by 4.75% this year which is more than originally forecast and as such will increase the governments funding requirements which is already mind boggling huge. He announced that public sector pay increases would be capped, that national insurance would be increased and that banks would incur a “special” bonus tax. But the detail on how the government was going to reduce their spend and reduce the tax burden was sadly missing and with a general election mandatory in the first half of next year the government is likely keep on to prevaricating. The Bank of England met and announced that they were keeping interest rates on hold and not increasing the programme of quantitative easing. This week we have inflation data and retails sales figures for November and unemployment data for October. The expectation is for the data to show stability in unemployment and small increases in consumer confidence.

 

The €, which sits at €1.108/£1 inter bank, lost a bit of ground following the down grade in the government debt for Greece but the loss was not as much as it might have been six months ago as the market seems to be more discerning and less worried about the dynamics between the different countries in the Euro zone. We also saw industrial output data for October for France and Germany come in under expectations which raises worries about the third quarter growth continuing into the final quarter. Overall production data is announced for the euro zone this week and is expected to mirror the decline as noted above for Germany and France. The ECB also highlighted that although they were starting to withdraw liquidity they would monitor this carefully and that interest rates like elsewhere were to be kept low for a while yet as there are still major problems to be dealt with in the euro zone

 

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