Sterling sunk to a new historic low versus the Euro yesterday and remains low this morning. Reaching 1.13 against the single currency, economists speculate that parity could be achieved over coming months as the UK enters the trough of the downturn. Sterling strengthened against the US Dollar yesterday amid expectations of reduction in the US base rate next week.
Sterling has depreciated approximately 20% against the Euro from this time last year and is 25% lower against the US Dollar than in the summer months. The Pound continues to be undermined by weak production figures and the opinion that the UK could be one of the worst economies hit by the credit crunch. Although Darling's pre-budget report predicted a 1% contraction next year, analysts are now putting that figure at closer to 2% and growth trends are being pushed back into 2010. The prospect of further interest rate cuts is also weighing on Sterling. The CBI Industrial Trends Survey, usually a good indicator of the health of the manufacturing sector, is due today and this could lead to further Sterling weakness.
The Dollar is broadly weaker overnight amid uncertainty over the extent of the Federal Reserve base rate cut next week. The Dollar is down 0.6% on the Euro and nearly 1% on the Pound.
The general consensus is for a 0.5% reduction in the benchmark interest rates by the Federal Reserve next week, taking them to 0.5%. Equity markets have been relatively neutral this week, replacing some of the recent volatility as investors have become somewhat desensitized to bad news. Stocks could take a positive swing with the announcement of a rescue package for the automobile industry. Crude remains in the region of $43 a barrel and is expected to rise in price ahead of a production meeting on December 17 when cuts are likely to be announced. Jobless claims are due in the US later today.
The Euro reached an all time high versus the Pound yesterday and remains high this morning as weak UK data continues to pressure Sterling. The Euro also gained on the US Dollar throughout the day yesterday breaking back through the 1.3 level to trade at 1.31 this morning.
Figures yesterday showed industrial production has declined in both France and Italy but this failed to stop the ascent of the Euro as negativity plagues its major currency partners. Economists are predicting the Pound could slide more against the single currency and we may see new lows in coming weeks. The ECB release their monthly report today which will detail prevailing economic conditions in the Eurozone.
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Notwithstanding the slowdown in Britain’s dominant service sector for November, the UK economy is...
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