Weekly US$ rates and comments - week commencing 19th May 2008

 

 

Steady week for sterling last week. This was even after the doom and gloom of the Bank of England's economic forecast which showed increasing inflation and slower economic growth. The worst result possible. The effect of high inflation is that interest rate cuts become less likely. The market feels that we will see only two further 0.25% cuts this year which is hardly going to get the economy moving into overdrive. But at least it makes it clear to everyone the depths of the problems that exist and sterling can only move forward once this is clear to all.

 

The US$ had a steady week as well and sits at US$1.961/£1 inter bank. Economic news was not great as US production for April was worse than forecast. The feeling/hope in the market is that growth to the US economy will return in the second half of the year. Interest rates were cut aggressively by the Fed in the first part of this year and no further cuts are planned for this year. So we wait to see if the forecast make sense. I suspect not but unless there is a further major hick up in the financial system the worst may be over.