Sterling had a mixed week last week losing ground against most currencies during the course of the week but regaining a bit of ground on Friday. The Chancellor held his pre-budget report mid week which seemed to be lots of smoke and mirrors but little content. He noted that the UK economy will contract by 4.75% this year which is more than originally forecast and as such will increase the governments funding requirements which is already mind boggling huge. He announced that public sector pay increases would be capped, that national insurance would be increased and that banks would incur a “special” bonus tax. But the detail on how the government was going to reduce their spend and reduce the tax burden was sadly missing and with a general election mandatory in the first half of next year the government is likely keep on to prevaricating. The Bank of England met and announced that they were keeping interest rates on hold and not increasing the programme of quantitative easing. This week we have inflation data and retails sales figures for November and unemployment data for October. The expectation is for the data to show stability in unemployment and small increases in consumer confidence.
The US$, which sits at US$1.62/£1 inter bank, continued to benefit from the better than expected US unemployment figures and increasing risk aversion following the Greece government debt downgrade. A lot of investors were betting on continuing US$ weakness and the reversal meant that there was a rush for the exit which probably means that the US$ strengthened more than expected. The Chairman of the Federal Reserve, which meets this week, highlighted yet again that interest rates were to be kept low for the foreseeable future. This week we have industrial production data and inflation data for November released. Again we see how the US economy is faring but the US$ will continue to be volatile.
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