Foreign Currency Exchange

Last week was a volatile one for the GBP/EUR cross as the UK saw the release of a raft of economic data including a 0.5% drop in interest rates to its lowest level in the BoE’s history to 1.5%. However, the interest rate drop did little to stop Sterling’s rally as we saw the fastest pace move up against the Euro in 9 years for a single day’s trade on Monday 5th. This was perhaps due to a correction of the over selling of GBP that took place in the last quarter of 2008.

Figures released included UK industrial data which was extremely weak with a 2.3% decline in industrial production for November to give a 6.9% annual decline. This was the sharpest decline since 1981 while there were further announcements of job losses in the manufacturing sector. This economic deterioration will limit the scope for Sterling support even if the immediate selling pressure on the currency eases.

Looking ahead this week, we will have more data from the UK retail sector which are expected to be negative and therefore the Pound will remain vulnerable to substantial loses. On the flip side, the Euro zone interest rate decision is due out on Thursday where we expect a 0.5% drop which may ease the pressure on Sterling slightly and will certainly make the markets extremely volatile. As always, timing is everything and clients should allow their FCG manager to assist them through these turbulent times.