A difficult week for sterling last week. It started well when the minutes of the last meeting of the Bank of England's monetary policy committee showed a unanimous vote to keep their quantitative easing programme at current levels. This helped sterling gain against most currencies and at one stage sterling hit €1.11/£1. However there was a sting in the tail on Friday when the economic data showed that the UK economy had shrunk by 0.4% in the third quarter. This is the sixth quarter of contraction and highlights why the Governor of the BoE has been so cautious in his statements on the UK economy. Sterling went into immediate freefall although its net movement over the course of the week was limited given its good start to the week. Still a long road until the UK economy to turns the corner and until then sterling will have few friends. There is limited economic data out this week with mortgage lending data for September due on Thursday and some preliminary data on sales, house prices and consumer confidence released throughout the week.
The US$ lost ground last week against the € passing through US$1.50/€1. It sits at US$1.625/£1 inter bank as I write. There is a lot of concern in the rest of the world regarding the US$'s weakness. Take for example the Brazilian real which has shown an appreciation of 30% plus against the US$ this year which clearly makes its exports less competitive. The concern is that the US$'s weakness may delay the recovery in countries where the currency has appreciated and even possibly causing the return of recession. This weeks the key US economic data is the US gross domestic product figure for the third quarter due n Thursday. The expectation is for an annualised rate of expansion of 3% which will be in stark contrast to the UK. The growth will have been supported by colossal government spending and by increasing exports given the weakening US$.
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