FW: Weekly US$ rates and comments – week commencing 29th June 2009

 

Sterling's recent run of form which started approximately 3 months ago has seemingly stalled, trading in a narrow range this week around €1.17/£1 against the euro and $1.64/£1 against the US$. At the start of last week sterling peaked momentarily at €1.19/£1 but has since edged down and has dampened expectations that we will see sterling back into the €1.20/£1+ region for a while at least. The Bank of England and its governor Mervin King have continued in their policy of trying to keep excitement for the recent gains by sterling and the improving sentiment domestically down by warning of the fragility still present within the UK financial sector and the negative effect of borrowing defaults in the future. A strong pound will also be likely to limit foreign investment and so there are strong signals that any substantial upside to sterling will be limited and perhaps even discouraged by the men at the top of the UK economy. A raft of UK economic data out this week with mortgage approvals, the Halifax house price index and the purchasing managers index all expected to show improvements and if correct will limit sterling's downside.

 

The Federal Reserve (Fed) announcement in the US this week was unsurprising given that rates were expected to be held at the current minimal levels. But with little clue as to when the Fed expect to begin increasing the 'key interest rate' the US$ also kept to a relatively steady range against sterling and the euro. One comment that rates would remain at "exceptionally low" levels "for an extended period" suggest we should not be holding our breath. First quarter US GDP data was marginally better than expect when released on Thursday but with risk appetite/aversion still the major driving force behind the strength or weakness of the US$ on the markets only very limited momentum can be expected by such news. Also a raft of economic data from the US with both the purchasing managers index and unemployment figures being released this week. Again steady progress is expected.