Foreign Currency Exchange

Last week saw a very turbulent week, with Sterling starting at a low 1.0880 against the Euro, and strengthening to just over the 1.11 mark in the early part of the week, as Bank of England minutes on Wednesday morning showed unanimous support for a halt in the Quantitative Easing programme upon signs the economy was beginning to recover.

Sadly, this strength was to be short lived as GDP figures on Friday unexpectedly showed that the UK was still in recession for the third quarter. Upon this release, Sterling dropped a cent against the Euro in seconds, then a further drop down to 1.0810 as the day went on. This news was a huge blow to the UK economy, as almost all analysts had been predicting that the UK would see a return to growth in line with the rest of the world. If the US shows positive GDP figures this week as expected, then it is likely that the United Kingdom will be the last of the major world economies to exit recession, which is likely to have catastrophic consequences for the pound.

Prime Minister Gordon Brown announced over the weekend that the UK would see a return to positive economic growth by the end of the year, although he offered no justification for his comments other than confidence in the future success of government fiscal policy.

Data releases on the continent were on the quiet side last week, with Sterling strength, then sudden weakness being the driving factor behind the GBP/EUR cross, and this is likely to remain similar for the week ahead, with housing data from the UK on Monday, and inflation data from the Eurozone on Friday the only noteworthy releases, and neither likely to have a significant effect on the market. More likely to affect the market are speeches by key policymakers such as central bank Governors Mervyn King or Jean-Claude Trichet as well as government finance ministers from the UK and Europe. Unfortunately, the markets get very little notice of such announcements, and thus they react sharply to any comments as and when they appear.