Weekly US$ rates and comments – week commencing 22nd December 2008

The downward trend for sterling has continued. More record lows were recorded against the euro and the dismal outlook for business growth, falling house prices and rising unemployment has only compounded matters. Exchange bureaus are now officially offering less than €1/£1 and the market rates are only a few cents away from parity. Consumer confidence has been severely dented according to the Bank of England's minutes, which were released last week and the UK's outlook is increasingly negative. Better-than-expected UK retail sales data both year-on-year and month-on-month did nothing much to help. Still no sign of any upside for Sterling.

 

The Federal Reserve in America surprised the markets worldwide by cutting interest rates down to between 0% to 0.25%. The FED's accompanying statement to the decision which suggested that the rates will be kept at these levels for some time had the immediate effect of weakening the US$ across the board. However, much of the lost ground against sterling was recovered throughout the rest of last week as prices moved back under the $1.50/£1 mark. The future strength of the US$ still hinges on whether it maintains its status as a safe-haven currency in the face of weak market data and the volatile price of oil. Risk-averse investors will be hard pushed to leave their funds in a currency where there is almost a tradition of the government printing more and more money as they seem to lose their grip on the economy.