Euro Weekly Update: September 2nd 2009
September 2nd, 2009
Britain’s economy shrinks by less than expected. Sterling suffers less than it might have done after upward revision to Q2 GDP. Germany and France expanded their economies in the second quarter.
The €1.15 support was flimsy and sterling slipped to €1.13 without much problem. It bounced to near €1.14 and was close to that level when London opened this morning.
It was not a horrid week for the pound but in no way was it a success. Sterling held its position against the Canadian dollar and faded everywhere else.
The reasons for its lack of traction were the same as before; central bank pessimism and uncompetitive economic data.
Not every figure was nasty. Nationwide’s house price index mirrored the picture from other mortgage lenders with a +1.6% increase in August that left prices just -2.7% down from a year ago.
The first revision to second quarter GDP was also a relief of sorts. After a first estimate that showed the UK economy shrinking by -0/8% between March and June the revision (still not the final figure) was toned down to -0.7%.
In no way was it a good number but, even so, it was better than many investors had expected so it did the pound a back-handed favour at the end of a difficult week.
A paucity of pan-European data left investors to focus on the German numbers. The first revision to second quarter GDP showed a +0.3% expansion – the same as the French figure – that made the UK situation look bad.
There was also support for the euro from IFO’s survey of the German business fraternity. The current assessment and the business climate both delivered an improvement and expectations went up by four and a half points to 95.0.
Below €1.15 the pound is not looking good. €1.10 is a real possibility. Buyers of the euro should increase their hedge towards 75% of their exposure. If the time horizon is close it would not be silly to cover 100%, just in case.
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