Cypriot £ comments - week commencing 17th September 2007

Northern Rock did for sterling. Even though Northern Bank is profitable it got caught by having short term funding to cover long term loans to clients. Given the credit crunch it found it very difficult to borrow from the inter bank market. Other banks are having to hoard cash for the huge amounts of funds they have lent to large private equity deals and which they are unable to on sell to other financial institutions. Hence the need for the Bank of England to supply short term funding to Northern Rock. Sterling had been falling ever since the BOE decided to hold UK interest rates at its meeting in early September. I suspect that the situation has been over dramatised and that sterling is oversold but it may well take time for sterling to recover.

 

The Cy.£, which is pegged to the €, is in the ascendancy hitting Cy.£ 0.829 inter bank. The European Central Bank still believes that the Euro interest rate is too low and this has led the market to believe that interest rates will be increased by at least 0.25% by year end. The Euro land economy is still robust and the Cy.£ has gained over 3 cents against sterling in just over week. This is a very significant appreciation and may be relatively short lived and as such could well be a good time to sell Cypriot £'s.