Weekly US Dollar rates and comments - week commencing 3rd March 2008

 

UK economic news continues to be poor including UK consumer confidence, slowing house price inflation and fourth quarter growth that looked over reliant on government expenditure. However, most of the main "stories" came from elsewhere and because of this sterling's fate was a one of contrast gaining against some currencies and losing against others. The Bank of England meets later this week and it will be interesting to see if they reduce UK interest rates. Clearly the UK economy is suffering and the credit crunch is still causing significant difficulties to the financial arena. But inflation continues to be a major problem and therefore UK interest rate cuts may not happen as quickly as expected or hoped for.

 

The US$, which sits at US$1.983/£1 inter bank, lost ground against sterling and most other currencies on the back of fears of US stagflation. This is when inflation is high but the economy is performing poorly or may even be in recession. The Fed has cut US interest rates twice this year and a further cut is expected in March. We could be heading back to US interest rates of 2%. However inflation is on the increase as we see oil over US$100/barrel and a lot of food commodities, such as wheat, experiencing very rapid increases in selling price. Such increases are inflationary. As a result the US$ has been suffering hitting all time lows against the Euro.