Weekly US$ rates and comments - week commencing 23rd March 2009

Having made broad losses against most major currencies in prior weeks, last week sterling continued to slide against the euro but made substantial gains against the US$. The UK unemployment figures and the minutes from the Bank of England's (BoE) last meeting on interest rates were both released on Wednesday. The minutes suggested that the BoE members would continue their 'dovish' stance on monetary policy and would look to further unconventional means of supporting the economy and liquidity, if necessary, in the months ahead. The UK unemployment figures also broke the psychological two million figure and together with the news from the BoE, sterling fell to some of its lowest levels against the euro since almost hitting parity in early January. Any upside for sterling will be limited for as long as such drastic measures from the BoE are endorsed and the IMF has also suggested that we will be the last out of the global recession.

 

With little significant news or market data for the US, the US$ held steady in the first half of last week. However, the announcement from the Federal Reserve (Fed) that they will start their own 'unconventional' monetary policy and begin quantitive easing saw the US$ make steep losses against all major currencies in the following day's trading and sterling now sits at US$1.4561/£1. An amount of over $1 trillion has been promised to help boost the suffering credit markets and buy mortgage debt. Whether this news is the 'beginning of the end' for the US$'s status as a safe-have asset and cause a major re-valuation on global markets is to be seen.