Sterling isn't as friendless as it was last week. Still not the belle of the ball but at least the occasional glimmer of interest. The fate of sterling was more influenced by what was happening elsewhere rather than here in the UK. Still significant problems given the parlous state of the UK economy and the Bank of England has a difficult balancing act between fighting inflation and helping the economy. The market still expects the BOE to reduce interest rates to help the economy but the BOE needs to use UK interest rates to fight inflation. The housing market continues to suffer and the retail performance over Christmas was very mixed. Hopefully last week was the week where sterling found a base against other currencies. The only fear is that something nasty similar to Northern Bank comes out of the woodwork!
The US$, which sits at US$1.950/£1 inter bank, had a bad week news wise. The Fed Chairman said that further cuts in US interest rates may be necessary given that the outlook for the US economy had worsened. The market expects 0.50% at the end of the month. This was backed up by the business activity index for the Philadelphia region falling to its lowest level since the last recession. So a US recession is very much on the cards. Will the UK follow suit.
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