Sterling fell against most currencies during last week. After Thursday’s meeting at the Bank of England (BoE) brief signs of a fight-back were seen as sterling rallied sharply against most major currencies but this only proved to be a blip as rates fell again on Friday. Sterling has continued to fall at the start of this week. The BoE’s decision to keep interest rates on hold was of no surprise to the markets. However the surprise was the BoE’s decision not to increase the amount of funds available from the £125bn already allocated for their programme of quantitative easing. The reason for this is they need some feedback on what affect the programme has had to date. This week they will get some feedback as we have a raft of economic data out including inflation data tomorrow and on Wednesday unemployment figures. Today we see some data on UK retail sales. I suspect sterling will continue to be under pressure given the very high levels of UK government debt and the lack of any clear and concise plan on how to bring it down.
The US$ currently sits at US$1.607/£1 inter bank. There was no major economic data for the US last week. Risk aversion/appetite as measured through the performance of global equity markets and business confidence reports is still the major driving force behind the US$’s strength or weakness on the markets and has duly seen the US$ make marginal gains against sterling and the euro this week. The recent reversal in this trend has been interpreted mainly as a correction from the 40% rise in equity markets over the last 3 months and is also perhaps a product of those who are trying to limit the price volatility and the boom/bust economics that have caused so many of the problems that we have suffered over the last two years. This week we have price data from the US, which is expected to see an increase in deflation, US retail sales figures and at the end of the week US housing data. This will give a good feel for where the US has reached in its economic recovery.
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