Weekly US$ rates and comments - week commencing 4th February 2008

 

Sterling had been doing okay until Friday of last week when it lost ground against most currencies. It seems to have been a culmination of the weeks woes; bad housing figures, inflation forecast to be over 3% [target is 2%] plus the fact that the market expects the Bank of England to cut UK interest rates this week. The BOE have a very difficult job with greater than targeted inflation forecast countered by the fear of recession with, seemingly, the only tool at the BOE's disposal interest rates. We wait to see if this weakness continues this week as we approach the BOE meeting on Thursday and the announcement on interest rates.

 

 

The Fed cut US interest rates by 0.5% last week. The US$ sits at US$1.974/£1 inter bank which is not much different from last week. The Fed has made a total cut in US interest rates of 1.25% in just over a week. Avoiding recession in the US is top of the agenda. US unemployment rose in January. US inflation is "expected" to fall and is being viewed as a sideshow. We wait to see if the Fed manages to avoid recession. Further cuts in US interest rates are a real possibility.