Weekly US$ rates and comments - week commencing 16th March 2009

Having weakened off slightly in previous week’s trading, sterling continued a downward trend against most major currencies throughout last week. Persistent concerns within the UK banking industry as well as weak economic data such as a marked fall in month-on-month industrial production kept sterling under pressure and at a low ebb sliding to a 6 week low against the euro. The Bank of England (BoE) initiated its quantitive easing measures on Wednesday which brought about little reaction on the markets and with little market data published in the latter part of the weak sterling stabilised and even recovered some lost ground. According to a broader analysis of recent data, the UK recession is still gathering momentum and points to harder times to come. However, in spite of the tough decisions and some may consider risky actions taken by the government and the BoE to limit the damage of the recession, the UK could be considered to be ahead of the curve and even tougher times will surely come to those countries and governments who have lagged behind in their responses to the global downturn. This may be of benefit to sterling in the medium term.

 

The US$’s position as a safe-haven asset was reinforced last week thanks to speculation against the future strength of Japanese Yen alongside action taken by the Swiss National Bank to purchase vast amounts of foreign currency in an attempt to purposefully devalue the Swiss franc. US trade deficit figures, released on Friday, were more favourable than expected and helped bring some optimism and risk-appetite to investors and a slight fall in the US$ across the board. Otherwise, there was very little significant US economic data during last week meaning the US$ fell marginally against the euro and closed the week fractionally higher against sterling. In a time of such uncertainty in markets it is very difficult to see when and what will actually bring about the level risk-appetite to which will result in a more realistic value to the US$.