Weekly US$ rates and comments - week commencing 16th June 2008

Sterling continues to be "steady as she goes". Over the last few weeks there has been little downward movement which suggests that sterling has found a base from which it may strengthen. The only worry is if we have another shock such as a Northern Rock. UK inflation is the major concern. Not just here in the UK but worldwide. There is even talk that the Bank of England may have to increase UK interest rates sometime soon as a counter to UK inflation. I must admit my feeling is that this is unlikely given the parlous state of the UK economy but the BOE might be "forced" to do a one off increase of 0.25%. I suspect "more steady as she goes" until we see a pick up in the UK economy.

 

The US$ has gained a bit of ground and sits at US$1.953/£1 inter bank. This is on the back of high level rhetoric and, if I was to be honest, wishful thinking. The US retail figures for May were better than expected. However US inflation rose sharply in May. Both these events have helped support the market view that we have seen the last reduction in US interest rates for a while. I think this is probably correct but I suspect we won't see any increases in US interest rates for a while given the level of US personal debt and an already weak US economy.