Best currency report: may 2009

The European Central Bank (ECB) has cut rates to an historic low of one per cent and also announced other tools that could potentially be introduced in a bid to combat the credit crunch. One of these included a plan to buy around £53.5 billion of low-risk corporate bonds...

The Bank, which sets interest rates for the 16-nation euro zone, shaved 25-basis-points off its key rate, indicating that policy makers are highly concerned about the slowdown, despite tentative signs of stabilization in some sectors of the economy.

The ECB has now delivered rate cuts totalling 325 basis points since October as inflation has dwindled and unemployment has sky rocketed in the wake of the global crisis.

ECB policy makers also gave the European Investment Bank, a European Union entity which invests in infrastructure and other projects around Europe, access to ECB short-term funding. This will allow the EIB to meet a £9 billion boost in demand for its loans this year.

Here in the UK, the Bank of England did as expected and held interest rates at 0.5 per cent. The Bank also pledged to increase its quantitative easing (QE) programme to £127.2 billion.

The QE scheme, under which the central bank aims to boost liquidity by buying up bank and corporate assets - in effect printing money - was adopted earlier this year with an initial £76 billion.

Last month, economic confidence in the eurozone bounced back as cautious optimism took hold and there was also talk of a brighter economic outlook for the United States and China.

Adrian Jacob, Senior Account Manager at foreign exchange specialists Currency UK said, "The Pound has weakened recently against the Euro due to QE measures in the UK compared to the Euro measures which weren't as drastic as the markets expected.

"The USA turned up better than expected results which have gone some way to benefiting the UK and the Pound as the risk appetite was increased.

"It is definitely worth looking out for the Australian dollar against the Pound which is strengthening to almost unheard of levels at the moment," added Mr Jacob.

Picture by Adam Baker