Currencies

THE POUND may gain against the euro this week on expectations that the UK economy will start to rebound while the outlook darkens for growth in Germany and France.

On Friday, the pound rose against the euro to its highest yet at pounds 0.6801 per euro, from pounds 0.6848 late on Thursday. That's a 1.5 per cent jump in a week. The EU's currency began trading on 4 January at an initial rate of 0.7055. Sterling fell to $1.6245 from $1.6353 as the dollar surged against the euro and the yen.

"The prospects have improved for the UK [after the Bank of England's five interest-rate cuts]," said Jane Foley, a currency strategist at Barclays Capital. "Sterling has benefited from perception that the sharp downturn in interest rates will help revive the economy." She sees sterling moving to 0.66 euros in six months' time.

UK reports in the past week brought news of a surprise drop in the number of jobless, faster than expected inflation and a rebound in retail sales. That has some investors questioning the likelihood of the Bank of England cutting rates next month.

One hurdle to sterling's advance could be if growth turns out weaker in the final months of 1998 than the Government first figured. Tuesday brings the release of the second estimate of fourth-quarter gross domestic product and if revised down, fears of a recession could resurface.

"It will definitely be revised down," said Glenn Davies, chief economist at Credit Lyonnais Securities, who's expecting the Bank of England to hold rates steady at next month's meeting. But, if the rate is revised down further, the BOE may cut rates again in March, he said.

"We changed our view after the labour report," said Mark Wall, an economist at Deutsche Bank, where analysts had originally expected a March cut. "It could give the BOE an excuse to stay on hold."

Still, the Bank of England won't hesitate to cut interest rates further if the world economic outlook worsens, central bank governor Eddie George said on Thursday. "If the global economic prospect, and net external demand in the industrial countries, were to deteriorate further, then it would be right to contemplate further moves in the same direction," he said.

Meanwhile, the two biggest economies in the euro zone are grappling with faltering growth. The Bundesbank said on Friday that the German economy contracted in the fourth quarter by 0.4 per cent. In France, industrial output slid 1.6 per cent in December, falling more than analysts predicted and slipping at its fastest rate since November 1997.

The European Central Bank may soon have to trim rates to restore growth. The ECB left its benchmark refinancing rate at 3 per cent on Thursday. If euro rates decline, it would widen the gap with the UK and makes sterling more attractive. A three-month UK deposit presently pays 5.44 per cent while a euro deposit yields 3.08 per cent. In New York, the dollar surged 1 per cent on Friday to more than Y121 and to its best level versus the euro. The US reported a surprise narrowing of the trade deficit, meaning companies have fewer dollars to convert into home currencies. That combined with surging US growth and stocks makes the dollar unbeatable against the major currencies, investors say.

News
Russia Today’s new UK channel began broadcasting yesterday. Discussions so far have included why Britons see Russia as ‘the bad guy’
news

New UK station Russia Today gives a very bizarre view of Britain

Voices
Left: An illustration of the original Jim Crowe, played by TD Rice Right: A Couple dressed as Ray and Janay Rice
voices

By performing as African Americans or Indians, white people get to play act a kind of 'imaginary liberation', writes Michael Mark Cohen

News
John Moore inspired this Coca Cola Christmas advert
people

News
people

Top Gear presenter is no stranger to foot-in-mouth controversy

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The benefits of Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes