Foreign Currency Exchange

Both the British and EuroZone economies have looked weak, so neither is exhibiting enough strength to achieve a significant gain against the other. As a result, the Euro fluctuated very little over the past week, remaining between 1.2450 and 1.2750 throughout (Interbank).

The reduction in oil prices to below $125/barrel should provide some relief from fears of inflation, leaving the Bank Of England unlikely to increase rates before the end of the year, allaying fears of inflation voiced by Monetary Policy Committee member Besley who voted to raise interest rates in the MPC meeting at the start of July.

All of last week’s data releases proved more disappointing than expected, with retail sales dropping by 3.9%, significantly more than the predicted 2.6%, and the Rightmove.co.uk house pricing index for July showed a 1.8% reduction in prices, compared with a 1.2% reduction in June, indicating there may be further to fall before house prices level out.

Bank of England minutes and weak IFO figures from Germany both caused the GBP/EUR rate to climb into the 1.27s on Wednesday and Friday, however both settled down, with analysts expecting the rate to remain rangebound between 1.23 and 1.29, slightly biased towards the lower end in the short term as the markets will have to take account of a predicted rise in interest rates in the Euro Zone.

Analysts anticipate a similar week to last week; however UK consumer credit figures on Tuesday and Euro Zone Unemployment figures on Thursday may bring unwelcome surprises and cause the Pound to retrace its recent gains.