Foreign Currency Exchange

Last week saw Sterling start to suffer the effects of gravity following a fortnight of strength against the Euro, which many analysts are now predicting will be the new “safe haven currency” where investors will hold their deposits during the troubled economic times. The main news of last week was the GDP results from the Eurozone, which showed a contraction of 1.5%, worse than the predicted -1.3%. This did little to undermine the Euro against the beleaguered British currency, which remains extremely vulnerable without any investor sentiment or positive data to support it.

We also saw Bank executives being grilled by a Treasury Select Committee, and admitting that their businesses were built on an unsustainable model which has now come crashing down. On Friday, Prime Minister Gordon Brown also had some answering to do. He faced a quarterly meeting with peers, who demanded answers on how the Government had handled the financial crisis so far, and how its future plans would ensure the return to growth for the UK economy.

Looking to the week ahead, we have January’s CPI and RPI inflation data from the UK which is likely to show a drop in the core rate again, adding more scope for a base rate cut at the next BoE meeting in March. The likelihood of a further cut will become much clearer following the release of the minutes from the February meeting on Wednesday. Friday sees the release of UK retail sales figures for January, which were surprisingly positive in December at +1.6%, though are expected to show a contraction for the month of January. This is likely to weigh on the under-fire pound, and could send the market under 1.10.