Weekly US$ rates and comments - week commencing 26th May 2009

Last week was positive week for sterling. Encouraging news regarding UK inflation and words from the Bank of England (BoE) suggesting that the economy is progressing towards the target rate of 2% helped brighten the outlook. There were also suggestions that the $50bn asset purchase plan to stimulate the UK economy may be increased to $75bn which was in some areas seen as a vote of confidence for the actions already taken by the UK government and the BoE. Gordon Brown even drew praise for leading by example in recession-proofing the stalling UK economy. Last Thursday, the US credit agency S&P downgraded the outlook on the UK economy from stable to negative which in turn caused an instant fall in value for sterling, falling approximately 1.4% against the euro and the US$ within minutes. However, sterling rallied back throughout the day and closed the week roughly 1% up on the euro and 4.5% up and the recently impervious US$. Limited economic data this week so we wait to see if sterling can continue to hold its own.

 

The US having kept abnormally strong in these risk-averse times had a terrible week falling across the board as risk-appetite increased across most markets and currently sits at US$1.585/£1 inter bank. There were many contributing factors to the US$'s fall including, a weaker outlook from the FED on GDP contraction and unemployment in 2009, a positive performance on global equity markets which encouraged investors away from the safe-haven assets and speculation that the US may also be downgraded by S&P in their outlook and credit rating. Though this is not necessarily the end to the US$'s days as a safe-haven asset, it is the first time in a long time that the poor US economic data has had a detrimental effect to the US$'s value on the markets.