Weekly US$ rates and comments - week commencing 22nd September 2008

In a roller-coaster week, sterling rallied late and closed on Friday stronger against both the euro and the US$. Developments globally as well as domestically within the financial sector made for extremely volatile market conditions and an uncertain business climate. The FSA even having to introduce new restrictions on profiting from plummeting shares known as 'short-selling'. Lloyds and HBOS merged last week which may bring the loss of thousands of jobs but a necessary life-line to a lender with a huge share of the UK mortgage market. The Bank of England had voted 8 to 1 to keep rates on hold earlier in the month. The usual dissenter, Blanchflower, voting for a cut from the current 5%. The inflation and business growth balancing act is still on.

 

The Federal reserve too held their interest rates this month at 2%. Having gained so much ground over the last two months against all major currencies the US$, currently at 1.842/£`, finished at its lowest levels for some weeks against sterling and the euro. The US$ is showing all of the uncertainties of the American economy as last week more giants of the finance world were effectively rescued by the government. For the staunchest patrons of capitalism as we know it, state intervention within these multi-billion dollar companies has made the recent events all the more curious as concerning. The insurance company AIG was loaned $85bn to avoid becoming the next casualty of the credit-crunch.