Weekly US$ rates and comments - week commencing 14th July 2008

 

Minimal movement for sterling last week against most if not all other currencies. The Bank of England kept UK interest rates on hold which was as expected. What choice did they have, UK inflation is high and the economy weak. Probably none but I do wonder why interest rates are so high given they seem to have so little control over the major factors affecting UK inflation e.g. food, commodity and energy prices. Further falls in UK house prices and the major house builders have been laying off employees in significant numbers. As I mentioned previously the only plus for sterling is that the UK economic disarray is not dissimilar to that elsewhere.

 

The US$ lost ground on the back of a rising oil price and increasing fears about the US financial system and sits at US$1.985/£1 inter bank. The former almost happens as a matter of course as any weakness in the US$ is mirrored by an increase in the oil price and any strength in the oil price is mirrored by a weakening in the US$. The latter is going to be on-going as the scale of the losses made in the US property market are so huge that it is going to take quite a time for the balance sheets of all the financial institutions to be restored to a reasonable state of health.