Concerns regarding the health of the UK financial sector and the 'unconventional' monetary policy of the Bank of England re. quantitative easing continued to weigh heavily on sterling last week and its value against all major currencies suffered. Mervyn King, Governor of the Bank of England (BoE), is approaching pantomime villain status, as far as sterling investors are concerned, as his ability to talk-down the UK economy and unwillingness to offer support to sterling's value continues to drain confidence and depreciate the pound. The 'double dip' recession that some economists have warned of seems to be materialising and the rally seen during the early summer months has proved to be something of a false dawn. A significant report from one of the major European banks published last week raised the possibility of the £/€ exchange rate approaching parity [£1=€1] towards the end of the year, which was where we were at the start of the year. One positive is that the UK appears to be on course for a return to growth in the third quarter of this year. On Wednesday of this week we have the minutes of the Bank of England released which will be carefully analysed by the market, especially given the surprises contained in last months minutes.
The US$, which sits at US$1.617/£1 inter bank, has lost substantial ground against most currencies over the past few months as the global economy gets back in gear and investors seek riskier and higher-yielding assets. It has hit one year lows against a basket of the six major currencies and has lost significant ground against the euro. With the exception of sterling, this continued to be the case last week despite the economy showing evidence of returning to growth and the US equity markets continuing to perform well. Encouraging US economic data continues to be released including last weeks retails sales figures. This week we have US data on the US property market and durable goods orders for August which are both expected to be positive.
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