Weekly US$ rates and comments - week commencing 9th June 2008

 

No major movements for sterling in the last week, losing a bit of ground against some currencies and gaining a bit of ground against others. The Bank of England met and decided to keep interest rates on hold. This was very much as expected. The BOE's choices are somewhat limited as UK inflation is way above target but at the same time the UK economy is suffering. UK unemployment figures are expected to see an increase this week. Once we see inflation start to pull back it is expected that the BOE will start to cut UK interest rates. Strangely this may be good for sterling as it will show that the prime objective is get the UK economy going again rather than fighting inflation.

 

The US$ sits at US$1.975/£1 inter bank. The US has the same problems as the UK, high inflation and a weakening economy. Following comments from the Fed chief on how the weakness of the US$ had gone too far and had increased US inflation the US$ gained ground. It was highly unusual for the Fed chief to make such a comment and the benefit proved to be very short term as the US unemployment figures released at the end of last week showed an increase. This led to the US$ losing ground.