A quiet week for sterling last week. No statements from the Governor of the Bank of England or negative economic data to undermine sterling. In fact the economic news was on the whole positive with improving house prices, retail sales and industrial sentiment. However this improvement is only gradual and similar to that enjoyed being elsewhere in the world. This worried the market as it supports the view that the UK economy has stabilised but that the road to recovery is going to be slow rather than rapid. I suspect this is what most of us already knew but the stock markets were over optimistic and pulled back. As a result risk appetite fell and safe haven assets benefited. This week we have a mixture of economic data including the September purchasing managers index which is expected to show further improvement. But the markets will be nervous for sterling as we also have the next meeting of the Bank of England on Thursday. The expectation is for the BoE to keep interest rates on hold but what will worry the bank is the accompanying statement.
The US$ sits at US$1.601/£1 inter bank. A similar story for the US and the US$ last week. Unemployment figures released were slightly worse than expected but economic data showed that the economy had stabilised and that it was moving forward gradually. Again no great surprise but the US$ does benefit from its safe haven status so when investors realised they were being too optimistic the US$ gained ground. One of the problems facing the US is the reduction of individuals personal debt levels at record rates and the effect of this could well be deflation within the US economy. We could see a similar affect here in the UK. Otherwise economic data is expected to show small steps forward.
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