The midweek currency update courtesy of HIFX



Range of the week: 1.2642 – 1.2798

Variance of the week on £10k = €156

In the UK this week, better than expected retail sales figures have helped to raise hopes that the UK’s recession may not be as deep as initially thought. Sales volumes in July rose by 0.3%, and were up 2.8% from a year earlier, however this was driven by fuel sales, which rose 2.6%, as supermarkets tempted motorists with promotions. Excluding fuel, overall sales were unchanged.

Public sector borrowing fell less than expected in July as the government continues to struggle to reduce the deficit as corporate tax receipts fall short of expectations due to the recession. The ratings agencies have recently warned of the potential for further downgrades for some euro zone countries that are attempting to cut their deficits whilst facing very difficult economic conditions. It is likely the UK is also on their watch list.

GBP/EUR continues to be dominated by the comments and newsflow out of Euro zone with the high of the week reached after comments from the German central bank saying they weren’t in favour of the ECB buying unlimited government bonds; and the low of the week hit after a German ECB board member saying he was in favour of it.

Eurozone CPI, a key gauge for inflation, was in line with expectations and with previous months figure coming in at 2.4%. The ECB target is to keep inflation between 0 – 2 %, so normally you would expect a CPI number consistently higher than this to signal increases in interest rates. However, with the ongoing debt problems in Europe, this isn’t something the ECB are in a position to do. Markets seem to be in limbo waiting to see if the ECB will act on the sovereign debt crisis, as there are conflicting reports from Europe over whether or not they are in favour of unlimited bond buying.