Weekly US$ rates and comments - week commencing 12th May 2008

 

Not a good week for sterling last week. Sterling is having a tough time as UK consumer confidence appears to be at record lows and UK industrial output fell 0.5%. The Bank of England kept UK interest rates on hold which was as expected. The market feels that the BOE could well cut UK interest rates every other month for the rest of this year. This is in sharp contrast to the US Fed who cut US interest rates aggressively in the first part of this year and who are not expected to cut again this year.

 

The US$ continued to do well and sits at US$1.948£1 inter bank. No obvious reasons apart from the Feds decisive approach to the US's financial problems by cutting US interest rates quickly and by its very positive support for the US financial system through increased liquidity. It is also believed that the most likely direction for US interest rates is up, unless the US economy takes a dive, which has given further support to the US$. However, I do feel that this positive glow for the US economy is somewhat premature as there are still huge problems working their way through the system.