Weekly US$ rates and comments - week commencing 7th September 2009

Last week was a better week for sterling gaining against most currencies. There wasn’t a whole lot of economic data out. The purchasing manager’s index for manufacturing fell from the prior month whereas the same survey for the services sector was positive and expanding at a faster rate than forecast. These surveys together with improved business expectations and labour shedding beginning to slow has led to hopes rising that the UK economy could return to growth in the third quarter. But what of this week. The Bank of England hold their next meeting. The outcome from the last BoE meeting sent sterling into fast reverse and sterling ended up being the worse performing currency in August. The expectation is for interest rates to be kept on hold and no increase in the quantitative easing programme and hopefully we won’t have any surprises. We also have UK industrial production for July released which are expected to show an improvement over the previous month but a fall of 10% over the prior year.

 

The US$ lost ground last week on the back of increased risk appetite and sits at U$1.638/£1 inter bank. Unemployment figures for August were in line with expectations and the rate of job losses has reduced significantly from earlier in the year. However, US unemployment is now over 14 million and at 26 year highs. This is why the Federal Reserve have made it quite clear that interest rates will be kept low for the foreseeable future as the  US economy is likely to recover slowly and there is still a possibility of deflation given the high level of unemployment and spare production capacity. This week we see an update on the US trade balance figures for July.