Tuesday, 27 May 2008

Weekly US$ rates and comments - week commencing 26th May 2007

 

Sterling has been holding steady. The Bank of England's minutes showed that the vote was 8 to 1 in favour of holding UK interest rates. Inflation is the BOE's major concern. UK retail figures for April were better than expected which given declining house prices and slowing economic growth was a surprise. This probably means that any cuts in UK interest rates will happen towards the end of the summer. So the period of stability may hold for a while longer.

 

The US$ lost a bit of ground to sit at US$1.975/£1 interbank as fears over stagflation grow. This is when the economic growth rate is low or even possibly negative and much less than the rate of inflation. So the Fed now seems to be getting criticised for cutting US interest rates too quickly. Compare this to a month ago when the Fed was being lauded for its prompt and decisive action in cutting US interest rates. A thankless task being a central banker. So shorter term further weakness for the US$ is expected.

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