Currencies Direct market analysis June- July 2008

Despite recent economic data increasing the pressure on the UK economy, Sterling has recently made gains against the Euro on the back of the Euros inability to consolidate all time highs against the US Dollar.

The week started badly for sterling with PPI output month on month for June coming in at 0.9% against an expectation of approximately 1.2% and a previous figure of 1.6%, and PPI Input month on month for the same period came in at 2.1% against an expectation of 2.6%, indicating that the economic outlook in the UK shows no imminent signs of improving.

This was followed by reports that UK unemployment had its biggest rise in 16 years in the month of June, as the unemployed figure surged 15,500 to 840,100, this represents the biggest increase in unemployment since December 1992, which was the depths of the early 1990’s recession.

Consumer Price Inflation also spiked sharply in June to 3.8% against estimates of 3.6% and massively higher than the set inflation target of no greater than 2%. These factors combined leaves the Bank of England paralysed as it dare not cut interest rates with inflation running so high above target but to raise interest rates would almost certainly push the UK into recession if its not there already.

Pending retail sales, housing figures and the Bank of England minutes over the next week will establish the short term direction for sterling, but with the European Central Bank already hinting at further interest rate hikes, the pressure is undoubtedly on the Bank of England.

Commentary provided for Expat Financial Advice in Spain by Currencies Direct, Foreign Exchange Brokers, Past performance is no indication of future returns.  Rates of exchange are constantly changing.  To get the latest, best rate contact us and quote Barry Davys