Weekly US$ rates and comments - week commencing 1st June 2009

Sterling's promising rise against most currencies over the last month or so continued for most of last week. Still managing to close in positive territory on Friday against the euro, sterling's gains of approximately 15 percent against the USD since early March has given the markets a clear signal that risk appetite is back in some force and has directly leant itself to help sterling out of the mire. This week we have the Bank of England meeting on Thursday and the expectation is for no change in interest rates. There is also a raft of economic data out starting today with May's purchasing managers survey for manufacturing. The expectation is for the data to show a slow down in the rate of contraction.

 

 

The US$, which now sits at US$1.638/£1, and its fall against most major currencies over the past few months and last week in-particular has been an example of how the market is hinging on the risk-appetite/aversion phenomena. We also have the filing for chapter 11 of the once mighty GM today which is not a positive for the US$.  However, contrast this with a marked improvement in US consumer confidence and month-on-month durable goods orders last week only encouraged investors to shun the US$ for higher-yield and riskier assets. However, this fall in value is a symptom of improved confidence and will perhaps bring a more realistic value, in-line with its Purchasing Power Parity value (a valuation of currency based on the comparative cost of goods overseas).  This weeks economic data will be dominated by the unemployment figures due by the end of the week.