Weekly US$ rates and comments – week commencing 12th October 2009

 

Last week was one of those weeks where a lot seemed to be happening but sterling marked time against the US$ and the €. But not when compared to the commodity backed currencies against which sterling lost significant ground. This followed the Bank of Australia raising their interest rate. The Bank of England met on Thursday. This was against a background of poor industrial data for August and a disappointing purchasing managers index for September, although the corresponding service managers index was positive. In the event the BoE kept UK interest rates on hold and made no announcement on increasing the quantitative easing programme from its current level of £175bn [they have used £162bn so far]. The moment of truth will be their next meeting in early November when they will have further information on the UK economy and its recovery and whether or not there is a need to increase the quantitative easing programme further. I suspect they will have to and this will more than likely to be sterling negative. This week on the economic data front we have UK inflation and unemployment figures. As the rest of the world experiences deflation the UK still has inflation although it is expected to fall to 1,3% the lowest rate for five years. UK inflation seems to be the result of sterling's weakness making imports more expensive.

 

Last week in the US we had improving retail sales, a stronger than expected fall in jobless claims and good trading results from Alcoa, the US aluminium company. All positive, but by default, given the US$'s safe haven status, US$ negative which has slipped to a 14 month low on a trade weighted basis against a basket of the major currencies. The US$ sits at US$1.576/£1 inter bank. Last week the Chairman of the Federal Reserve confirmed that low interest will be here for a while. No real surprise there. The results season for US corporates has now started and will set the scene for how the recovery is progressing in the US. This week we have US inflation and retail sales data for September. Inflation is expected to be -1.4% [i.e. deflation] and retails sales are expected to fall by 2.1% following the end of the "cash for clunkers" car sale scheme.