Weekly US$ rates and comments - week commencing 22nd June 2009

Sterling’s upward momentum stalled last week largely due to weaker than expected UK retail sale figures as well as the detail in the Bank of England’s (BoE) meeting minutes from earlier this month suggesting quantitive easing and asset purchases were still part of their plans despite the recent upturn in confidence. The BoE has also been deliberately quick in trying to put the recent surge from sterling and the improving economic data in perspective and have warned of new and persistent problems which may arise as a hangover of the rather epic down-turn of the last year. Better-than-expected inflation data and a rally in equity markets would certainly have helped sterling claw back its midweek losses and close last week within a cent of its highest value against the euro in over 6 months. This week there seems a dearth of UK economic data. Today we have various housing indices which are expected to show house prices are still falling. No surprise then but the level of the fall will be watched with interest.

 

 

With risk-appetite firmly back in the market sentiment worldwide the US$ has only managed to keep its head above water from its rather large losses against most currencies in the last 8 weeks. The rate of decline in the US economy has eased according to recent economic figures and has consequently helped improve confidence and boost the US equity markets. Perhaps the biggest threat to the strength of the US$ at present is the continuing discussions by major powers such as Russia, China, India and Brazil on finding a new or alternative reserve currency but this will take time. There is a raft of US economic data out this week on inflation, housing starts and US durable goods orders and the expectation is that overall they will show positive signs for the US economy.