Weekly US$ rates and comments – week commencing 19th October 2009

A better week for sterling last week. It started off badly with sterling hitting a six month low against the euro. This was on the back of the rate of inflation for September being under expectations at 1.1% [August 1.6%]. I must admit I do wonder why there is inflation rather than deflation but I suspect sterling's weakness is a significant factor increasing the cost of energy and food imports. But then sterling started to strengthen as members of the Bank of England's monetary policy committee talked up the success of their programme of quantitative easing. Firstly the impression was given that the BoE would not increase the programme in the short term and then it was highlighted that the programme had been effective in getting the economy moving. They also acknowledged the need to remove this huge stimulus before it leads to inflation exceeding the 2% target. Also economic data on house prices and unemployment were better than expected and sterling had a strong end to the week. This week we have the gross domestic product figures for the third quarter. The expectation/hope is that we will see the UK economy growing albeit only just. We also have retails sales figures out for September with an expected increase of 0.5%.

 

 

The US$, which sits at US$1.626/£1 inter bank, did the reverse to sterling losing ground throughout last week getting close to US$1.50/€1. Good US corporate results from Intel and JP Morgan increased risk appetite. We also had the minutes of the last Federal Reserve meeting released which highlighted [again] that although the economy was moving forward with retails sales and manufacturing output being better than expected the improvement was slow and subject to possible set backs and as such interest rates would be kept at their current levels for quite a while. So no change in sentiment. This week we have US economic data on housing starts, existing home sales, producer prices and jobless claims. Will be interesting to see if they support this slow but steady improvement in the US economy.