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Weekly Currency Update - GBP/EUR

Weekly Currency Update - GBP/EUR

Old Aug 12th 2009, 8:21 pm
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Default Weekly Currency Update - GBP/EUR

Hi All,

As promised here’s a brief update on what’s been happening with the Euro over the last week.

With two major UK banks declaring first half year profits of £3 billion, Sterling was off to a flier last week. While the loan write downs and retail operations were pretty horrendous, the overall results perhaps justified this wave of optimism, also demonstrated in the FTSE’s rise. The thinking being that the sooner the bank’s balance sheets recover, the quicker they will be willing/able to lend the desired funds back into the economy, regardless of Government/public pressure. As if that wasn’t enough excitement, the latest round of manufacturing sector surveys showed the UK’s back above the 50 expansion level for the first time since March 2008. All this year, the UK has been at the forefront of this green shoot measure and again the EU version, although improving to 46.3, fell short of the magic 50.

GBP/EUR reached back to 1.18 for the first time since the end of June. Wednesday’s round of data again demonstrated the contrast between the UK and the EU with the former’s service sector survey rising for the 3rd month in a row above 50 and the EU’s falling short at 45.7. The UK also recorded monthly gains in industrial production, while EU retail sales remained stubbornly negative.

With Sterling, the FTSE and hopes, running high, even in the press, it was left to the Bank of England to burst the bubble on Thursday by quite unexpectedly announcing a £50 billion extension of the quantitative easing programme. Commenting that the recession had proved deeper than expected and that the recovery still looked fragile, the Bank decided that additional buying of Government gilts, designed ultimately to stimulate fresh lending to the economy, was necessary. We note that the Mervyn King, in particular, spoke critically about the rise in debt levels well ahead of the credit crunch but felt powerless to do anything about it. It may be that a combination of his cautious approach and the desire to take affirmative action this time around is motivating him/the Bank. We can imagine that such a keen economist as King would not want to see the UK go the same way as Japan and risk a decade of stagnation, verging on deflation. Sterling fell rapidly on this announcement reaching 1.1630 by Friday, only to stage a recovery on Friday to 1.1750. Announcements of quantitative easing initiatives around the world have resulted in merely temporary currency weakening. This pattern seems to be holding true.

Euro Movement – High’s & Low’s of last week (03/08/09 - 07/08/09)
High’s: 1.1826
Low’s: 1.1636
A movement of: 1.63%

Difference on £200k
High: €236,520
Low: €232,720
Difference of: €3,800

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.

A further update will be added next week.


Mark Bodega
Director - HiFX
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