Weekly US$ rates and comments – week commencing 1st December 2008

Sterling made steady gains throughout last week against the US$ and the €, owing more to issues within the American and European economies rather than from anything positive from recent UK market data. The pre-budget speech by Alistair Darling last Monday did little to move sterling on the markets. However, one mildly positive note was the release from Nationwide on Thursday of house prices falling less than was expected over the past month. The upside potential for sterling is quite possibly limited by the prospect of another aggressive cut in interest rates from the Bank of England this week. Should the base rate be slashed by 2%, down to 1% as some suspect may be the case, sterling may well find itself losing significant ground once more this year. Even if the reduction is smaller, the downside risk is still significant.

 

A US$800bn dollar stimulus package announced by the Federal Reserve on Tuesday saw the US$, currently at 1.538/£1 continue to weaken across the board. This again reminded the world that despite its recent popularity as a low-risk asset, shortcomings within the financial sector in the US will continue to impact the value of the US$ for some time to come. The American markets were on holiday for Thanksgiving and, despite weak data being released consistently over last week, losses against the euro were pared back by weak European data on Friday.