Weekly US$ rates and comments - week commencing 27th October 2008

Conditions went from bad to worse for sterling last week. On the release of poor GDP figures on Friday, which were widely expected to show the UK economy contracting over the last quarter, the pound went to a new record low against the euros and slipped further down against the US$. Considering that the poor GDP figures and the comments earlier in the week from Mervin King and Gordon Brown which did the damage to sterling did not tell us anything we didn't already know it was perhaps further testament to how volatile market conditions continue to be. The Bank of England's minutes from their meeting this month were released and showed the members to be unanimous in their decision to cut rates a fortnight ago. The growing likelihood and speculation is that UK interest rates will be down to as little as 3% by the middle of 2009.

 

The US$, currently at 1.53/£1, has by all accounts broken free from the recent effects of the credit crisis and continued to surge across the board and throughout last week. Having gained back roughly 25% of its value against the pound over the last eleven months and sitting at its highest level against the euro since October 2006, the speed of the recovery has taken many by surprise. The fact that the Federal reserve have only 150 basis points left to cut from their interest rates will certainly have helped the US$ of late and expectations are that the Fed will cut again by a further half a percent next week to 1% in their next monthly meeting.