Weekly US$ rates and comments - week commencing 30th March 2009

Having started last week positively, largely thanks to a better than expected inflation report., sterling's performance fell away mid week following an under-subscription of UK government bonds, the first time in seven years, on Wednesday and poorer-than-expected retail sales figures on Thursday. However, on Friday's sterling rose against the euro due to inflation issues within Europe but at the same time made losses against the US$ as quarterly UK GDP data showed a larger than expected contraction in the UK economy. The Bank of England's (BoE) monetary policy will again be brought into focus in the coming weeks as a marked increase to UK inflation could help the bank to take a less aggressive stance and put on hold plans for further quantitive easing.

 

 

The US$ is at US$1.4163/£1 first thing Monday morning. Plans put forward by the US government to effectively buy out the toxic assets from the troubled US financial institutions helped to increase risk appetite in the markets at the start of last week thus causing the US$ to weaken. US Gross Domestic Product (GDP) figures released were marginally better than expected but had little influence on the US$'s value generally. However, as has been the case of late, a loss of risk-appetite on Friday due to speculation regarding massive economic deficits in several European economies help the USD to its highest levels against sterling and the euro in some weeks. Discussion of a proposed new 'reserve' currency, maintained by the International Monetary Fund (IMF), as a replacement for the US$ as a safe haven asset, has created a new focus for all investors everywhere. Though favoured mostly by the Chinese at present, could this phenomena be what brings a more realistic and accurate value to the seemingly invincible US$? The logistics are mind-boggling and is extremely unlikely to develop in time for use against the current crisis, but a genuine point of interest none-the-less.