Sterling had one of its worst days in recent memory against the euro yesterday with a 4 cent move from high to low. Data from the UK and Eurozone compounded this issue although a certain amount of this move must be put down to fear and greed.

Employment levels in the UK saw 17 year highs in November as the number of new jobseekers claimants rose by 75,700 as supposed to an expectation of 45,000. The jump is reminiscent of the recessions of the 80s and 90s and more is forecast to come given that unemployment figures tend to lag the economy.

The minutes from the MPC’s most recent meeting showed a unanimous vote for the 1% cut that took interest rates down to 2.00%. A larger cut was discussed however the committee voted against it in order not to undermine confidence in the market and may cause an excessive fall in the value of sterling. Interest rate expectations have been amended following this and analysis now suggests a 1% cut over the course of Jan and Feb bringing the rate to 1%; a 314 year low.

There was some poor news out of the Eurozone yesterday although it darkened the risk atmosphere of the global economy as supposed to that of the single currency. Deutsche Bank has refused to redeem a bond issue risking the ire of investors and causing its share price to fall by 7%. The euro however continued its rally as expectations of a halt in interest rate cuts by the ECB increased.

Sterling has been able to cling to its gains against USD overnight however as concerns over the size of the quantative easing that President Elect Obama’s stimulus package may require. The latest figure being bandied around is $850bn with major amounts of funds being set aside for infrastructure, jobs and capital. This further underpins our views of a weaker dollar in the coming 12 months.

Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:

Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

To view any past or present currency blogs please click on the following link www.worldfirst.com/blog

Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.

Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.