Weekly US$ rates and comments - week commencing 20th August 2007

Sterling continues to be under pressure. The liquidity crisis is having far reaching consequences. The flight to safety has focused on the Yen, the Swiss franc and the US$ in the form of treasury bonds. UK news focussed on the Consumer Price Inflation figure for July of 1.9% being for the first time in a while less than the target rate set for the Bank of England of 2%. Also the minutes of the last BOE meeting were announced and they showed a 9 to nil vote in favour on keeping UK interest rates on hold. The market now believes that UK interest rates will be kept on hold for a while and is even wondering if the market turmoil will negate the need for a further increase. As I noted at the start, sterling is under pressure.

 

 

The US$ has made further gains against sterling and is as I write standing at US$1.982/£1 inter bank. US treasury bonds are considered as safe haven assets. Given the volatility in the market place we are also seeing overseas US investment funds flowing back to the US. We wait with interest to see where the US$ strengthening stops. The US economy still has some major problems so any short term and significant improvement in the US$ is likely to be curtailed by these problems.