Foreign Currency Exchange

Sterling made modest gains against the Euro last week, predominantly off the back of negative sentiment in the Eurozone, a welcome change for anyone buying Euros .

At Thursday’s meeting, the Bank of England held interest rates at 0.50%. This was the first “no change” decision since September 2008. The following BOE Monetary Policy Committee’s statement was short and provided little in the way of new information. However, they did say that they would continue with the program of quantitative easing efforts and that it would take another two months before the program was completed.

The European economy suffered last week as Q4 GDP figures fell by 1.6%, worse than the 1.5% expected. This was the deepest quarterly fall for GDP figures to date and was put down to the massive fall in external trade. The strength of the Euro as a currency, especially compared to the weakness of the Pound has severely damaged their export market, which in turn has badly affected areas such as manufacturing as demand has evaporated.

The recent ECB monthly bulletin report showed risks of Eurozone deflation and implied that the ECB could cut rates further through the foreseeable future in an effort to encourage spending in order to stimulate the market. The relative strength of the Euro is clearly damaging their economy and this is providing some much needed support to Sterling
This week data releases are relatively thin on the UK side so once again it is likely that most movement will come from the European side. In particular CPI and Industrial production figures which are expected to be poor could provide further support for Euro purchasers.