Currencies  Direct Report

19, October 2009

We ended last week looking more positive for the beleaguered pound which gained against both the euro and the USD from a poor start to the week. We are getting mixed messages on Quantitative Easing and the possibility of expanding the programme further; the pound gained following a report in the FT that the Bank of England may hold back from extending QE as it felt the economy ” was in good shape”

However this morning we are again on the back foot as Sir Howard Davies, director of the London School of Economics, said that Britain faces a dangerous rise in the levels of public debt; even inclusive of proposed tax increases…depressing! The article reported in the Telegraph went on to suggest that the government is running out of weapons to fight the crisis and the fall in the pound which should boost exports has been fairly benign and he added that “The pound never stops where you want it to,” indicating a possible run on the pound.

However depressing the slide in sterling looks at least it is reflective of the health of the economy. The same cannot be said for the strength of the euro which has gained to some extent as an alternative reserve currency to the USD even in the light of weak economies throught the eurozone.p>

Jean-Claude Trichet, European Central Bank president, said this week that “the euro was not created to be a global reserve currency.” Highlighting the concern on this factor. The problem for the eurozone is that an over inflated euro could hurt the economies in the long term, where as the pound should gain with growth; time will tell.

This week for the UK we have Q3 GDP on Friday and retail sales on Wednesday to focus our attentions on.

Report by Phil McHugh

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Compiled by Tom Nadir.

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