Weekly US$ rates and comments - week commencing 28th January 2008

 

Sterling continues to gather friends. Not enough friends for a party but a great improvement when compared to two weeks ago. The minutes of the last Bank of England meeting were announced and showed that the BOE was still focussed on combating inflation and a key control is UK interest rates. The market still expects UK interest rates to be reduced but one suspects that unless something like a new Northern Rock happens the cuts will be made in 0.25% steps over a period and in a considered manner. Otherwise UK news was dominated by news from elsewhere. So given the uncertainty either way I would suggest that to buy or sell euros makes sense so as to be very sure of what your costs are or what you are going to get.

 

The US$ had an entertaining week and sits at US$1.981/£1 inter bank. The Fed Chief surprised the market last Tuesday by reducing US interest rates by 0.75%. This had been "expected/hoped for" by the market given the need to stave off recession in the US. More cuts in US interest rates are expected and I wonder if in order to avoid falling into recession US interest rates will need to head back to 1%.