Sunday 21 February 1999
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.
- 1 Game of Thrones season 6: Jon Snow theorists believe Ned Stark's son may have a twin sister
- 2 Artist takes LSD, draws herself over different stages of the 9-hour trip to show its effects
- 3 Miley Cyrus address Robin Thicke VMA controversy: ‘He wanted me as naked as possible, but I got the heat because I’m a woman’
- 4 A pint of water every day is the key to losing weight, scientists say
- 5 How the NHS is being dismantled in 10 easy steps
Miley Cyrus address Robin Thicke VMA controversy: ‘He wanted me as naked as possible, but I got the heat because I’m a woman’
Most expensive city to live in for expatriates: Luanda, Angola takes number one spot with Hong Kong and Zurich in top three
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal get peerages
Moody neurotics are more likely to be creative geniuses, study says
Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Labour leadership: Jeremy Corbyn accused of 'deluding' young supporters with 'claptrap'
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Iain Duncan Smith calls for urgent ESA overhaul as part of drive to cut down welfare costs
Stock up on canned food for stock market crash, warns former Gordon Brown adviser
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...