29/01/10

By Andrew Holt

Sterling reached a five month high against a broadly weaker euro yesterday, hitting a day high of €1.1625.

Mounting worries about sovereign credit risk within the euro zone have undermined the euro, as tumbling Greek government bonds highlighted the market's concerns over their ability to pay back its soaring deficit.

Mark Bolsom, head of the UK trading desk at Travelex, the FX Payments group, said: "Sterling was also bolstered by Bank of England MPC member Andrew Sentance's bullish comments yesterday. The markets took comfort in his apparent assurances that Quantitative Easing will not be extended past its current level of £200 billion.

"Despite Sentance's comments, I still think a double-dip recession is a strong reality and shouldn't be rejected. It is an undeniable fact that both the government and Bank of England have pumped in unprecedented levels of stimulus into the economy and it has grown only marginally.

"And because of our huge deficit, we expect a real tightening of fiscal policy after the general election. The situation stands to get far worse when stimulus is withdrawn - we can see already that retail sales are already slumping now VAT has returned to its former level. The real question is what will happen to growth after the stimulus is withdrawn? I wouldn't go as far to say return to recession is inevitable, but I would say it is a strong possibility."

With regards to a broadly weaker euro, Bolsom commented: "Most Euro zone states will be pleased with a weaker euro as it helps their competitiveness in foreign markets. Certainly, Head of the European Central Bank, President Trichet, has been vociferous in calling for a stronger dollar against the euro."

Home     More News


Other stories you may find of interest:

Compact survey in full swing
Officials in central government departments and non-departmental public bodies are taking part in a new national survey to measure the levels of awareness, knowledge, use and understanding of the Compact

Productivity being undermined by poor mental health
Productivity across the UK is being significantly undermined by people coming to work with poor mental health as a result of stress and conditions such as anxiety and depression

Nine social enterprises on awards shortlist
Nine social enterprises are on the shortlist for the English heat of the national Social Enterprise Awards.