Weekly US$ rates and comments - week commencing 18th August 2008

Sterling's gains from the previous week were shed rather quickly following the Bank of England's inflation report last week. Sharp losses against almost all major currencies were felt as the reality concerning the state of the UK economy was spelt out in clear terms by Mervin King. An easing bias, or in layman's terms, the intention to cut the base rate to help boost growth within the economy, was the main theme drawn from the report as the markets adjusted, sending sterling yet another step back in its climb out of the mire.

The US$, currently at 1.8660/£1, continued its climb against all currencies last week and found itself at its highest level against the Pound for two years and its highest level against the Euro for over six months. Further drops to the price of commodities and metals had leant support to the resurgent US$ and expectations of hikes in interest rates from the Federal Reserve of America were already been priced-in. How far the US$ will continue to go before settling will almost certainly be a matter of interest within the markets as the apparent shift in focus to economic growth has taken over from the concerns of relative inflation.