Weekly US Dollar Rates and Comments - Week commencing 13th August 2007

Sterling had a strange start to last week losing a cent and half against the Euro very first thing Monday morning. The explanations as to why the sudden movement happened have been somewhat limited especially given the lack of sterling negative news over the weekend. At the same time, there was a rapid decline in the US$ against the Euro. There has been a partial recovery in sterling during the course of the week but it would seem that sterling is now being identified as a high risk rather than a safe haven asset and, as such, is moving in line with the US$ dollar against the Euro. The flight to safety has been brought about by high volatility in the equity markets and the credit crunch in the debt market which are making investors very nervous.

 

The US$ has made gains against sterling and is sitting at US$2.024 inter bank. Certainly the US$ is under pressure against the Euro but sterling suffers from a lot of the same problems [i.e. the UK has an extended mortgage market, budget and balance of payment deficits and poor retail figures for July] that are inflicting pain on the US$. There is a view that we could be seeing a significant improvement in the US$ against sterling but I expect that, at best, to be a few months away