Sterling again held the middle ground. The Governor of the Bank of England highlighted the problem of rising costs and a faltering UK economy. UK Inflation could be as high as 3% by year end whereas the target is 2%. As a result, the market has tempered its expectations as to the speed and extent of UK interest rate reductions. I still believe sterling is oversold [i.e. sterling should strengthen over the medium term but the reality could be a lot different] but beware if there is another major shock like Northern Rock as we would see sterling slide rapidly.
The US$ lost ground against sterling and sits at US$1.952/£1 inter bank. The Fed Chief highlighted the fact that US economic conditions were poor and that further US interest rates cuts were a distinct possibility. This was on the back of better than expected US retail figures for January. The problems the US has with bad debts on property are huge. A recent programme highlighted how the property boom had been a gravy train for all, including some of the house owners who got large "cash back" payments when buying their property and seem to have limited liability when they have walked away from their properties/mortgages. The bad debts must end up somewhere!
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