Foreign Currency Exchange

This week is a historic one for the Eurozone, as the economy contracted for the first time since records for the single currency began in 1995. One of the European Central Bank’s executive board members, Lorenzo Bini Smaghi, has said growth in the European economy is slowing a lot faster than forecast.

Confidence in the Eurozone has also been affected by news from Spain, where inflation levels are the highest in the Eurozone and it’s having one if its biggest property price collapses ever.

Data such as the PMI and Sentiment surveys in recent weeks have pointed to weaker growth during the second half of the year. Indicating that the ECB are likely to cut rates before the end of the year or in Q1 of 2009. The minutes from the MPC meeting in August are due to be released on Wednesday and will be an important indicator for future interest rate expectations, as underlying pressure for lower rates continues to increase in the UK. As for the GBP/EUR cross, both the UK and Eurozone economy, are looking bleak and this will weigh heavily on both economies. It is expected that trading will remain between 1.235 and 1.28 in the short term, although all eyes will be watching for the interest rate decisions from both the Eurozone and the UK.