Weekly US$ rates and comments - week commencing 8th June 2009

Sterling's positive run on most major currencies was curtailed in the middle of last week as risk-aversion returned and the safe-haven USD regained lost ground from last month. The continued pressure on Gordon Brown to resign as PM, having navigated the UK economy this far through the credit crisis, has reflected poorly on sterling as any major upheaval in domestic politics could spell a reworking of current plans and delay action on matters yet to be resolved. UK economic data last week, ranging from consumer credit reports, mortgage approvals and inflation data, was no worse than expected. The Bank of England also kept interest rates on hold at 0.5% and stated that there would be no immediate expansion of the quantitive easing measures – at least for the time being. By close on Friday, sterling was roughly 2 cents down from its opening price on Monday against the US$ but 7 cents down from its peak price mid-week. Against the euro sterling managed to rally back from its midweek losses and close trading on Friday practically unchanged from Monday's levels. Sterling's weakness has continued into the start of this week as the calls for Gordon Brown to resign grow ever louder and until this uncertainty is resolved one way or the other sterling will continue to be under pressure.

 

 

The US$ bounced back from its recent fall against almost all major currencies last week as risk aversion and the demand for safe-haven assets returned to the markets. The US$ has strengthened breaching the US$1.60/£1 level and currently sits at US$1.588/£1 inter bank. There was also a major boost for the US economy on Friday as unemployment data showed a much better result for the month of May than was widely anticipated. The US$'s return to strength is perhaps a loss of confidence in the 'bear run' of investor confidence and a quick sell off of the high-yield assets. There will be great interest over the coming weeks as to which trajectory the US$ will take, as a continuation of risk-appetite may give a major clue to the worst of the crisis being over. In the short term the US$ is likely to benefit from greater risk aversion and against sterling the problems with Gordon Brown's premiership.