Sterling Exchange rates have increased slightly this morning, from the dramatic falls of last week, in which we saw the Bank of England enter unknown territory, pumping £2bn of newly created money into the economy.
Sterling to US Dollar is now back up above 1.40, with the Euro rate also up, over 1.09. Sterling rallied against the dollar late on Friday, lifted by brighter sentiment in EU stock markets, as investors became less risk averse.
The pound also advanced against the euro, but stayed close to recent six week lows, with the Euro benefiting from the Swiss central bank's decision the previous day to weaken its currency.
EU Stocks
European stock markets gained ground for a 4th consecutive session on Friday, with the financial sector leading the way as confidence grew that some large U.S. banks like Citi Group may not have to go down the road of nationalisation.
"There seems to be a slightly more positive feel to the market today, with people trying to digest the moves of this week and Switzerland's moves into the FX market yesterday," said Paul Robson, currency strategist at RBS in London. "There's also a habit of reversing trends ahead of the weekend, just in case there is more bad news as it has tended to come with increasing regularity," he added.
So, this slight recover in rates may be short lived. We have lots of economic data for the US, UK and EU this week (outlined below) - any negative data for the UK could cause a continuation of the decline in rates.
US Recovery?
The Fed Chairman Ben Bernanke has said he expects America's recession to end this year.
"This decline will begin to moderate and we'll begin to see a levelling off," the Federal Reserve chairman told the CBS 60 Minutes TV programme.
He also said the world had come very close to financial meltdown last year, before governments stepped in. The head of the US Central Bank said his greatest worry is that lawmakers and the public will withdraw support for efforts aimed at stabilizing the shattered banking system.
"The biggest risk is that, you know, we don't have the political will," he said. "We don't have the commitment to solve this problem, and that we let it just continue." "In which case ... we can't count on recovery."
I think this is his way of saying that the US will continue to be in recession for the remaining 3 quarters of 2009. I think forecasting a recover as soon as 2010 is wishful thinking, and certainly the markets took little notice of his comments, with the dollar actually weakening slightly.
G20
Finance ministers from the G20 group of rich and emerging nations have pledged to make a "sustained effort" to pull the world economy out of recession. "We are committed to deliver the scale of sustained effort necessary to restore growth," they said in a joint statement after their talks in the UK.
UK Chancellor Alistair Darling said they agreed the International Monetary Fund should be given more money. The talks were held amid reports of rifts over the best way forward.
The outline agreements will now provide the basis for more concrete pledges at next month's meeting of G20 leaders in London. To me the emphasis on talk and not action tells its own story. The differences of opinion of world economies on how to deal with the problem, means a group targeted approach to the economic downturn is unlikely.
This weeks data
Lots of data from all corners of the globe this week, all of which may cause volatility in exchange rates. please get in touch to discuss your specific requirements, and we will be happy to provide you with specific information regarding the currencies you have an interest in.
Below is a list of what to expect this week for each economic zone. Come back daily for a detailed report on each days data:
European Union
Consumer Price Index
Employment
Industrial Production
Construction Output
Trade Balance
United Kingdom
House Prices
Bank of England Minutes
Unemployment
United States
Industrial Production
Producer Price Index
Consumer Price Index
Jobless Claims
Ben Bernanke speech (Fed Chairman)
Elsewhere
Germany - ZEW Survey
Japan - Interest Rates
Canada - CPI and Retail Sales.
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Labels: EUR, Exchange Rate Forecast, GBP, Sterling Outlook, USD