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Posted October 20th, 2008 by Charles Purdy

Weekly US$ rates and comments – week commencing 20th October 2008

After a positive start to the week which saw sterling make gains against the euro and US$, sterling only managed to maintain similar trading levels to previous weeks. The start of the week benefited from renewed confidence born from the UK treasury’s cash injection to the high-street banks and lending markets. There was unprecedented volatility in the stock markets throughout the week, the FTSE recoded its worst daily losses in several years, but this did not translate to the value of the pound on the markets and prices remained relatively steady. The Bank of England suggested this week that inflation was now expected to return to target levels sooner than had been previously anticipated, earlier in the year, and suggestions from one member of the MPC supported speculation on the likelihood of interest rate cuts in the coming months.

 

 

The American government’s solution to the current banking crisis was strikingly familiar to the British and a $250bn injection to its biggest banks and lenders was announced early in the week. Despite some rather down-beat but refreshingly realistic forecasts regarding business growth and productivity from the Federal Reserve’s chairman and vice-chairman the US$, currently at 1.750/£1, also maintained recent levels in the face of plummeting stocks and shares. Hints from the FED regarding a further cut in interest rates, potentially brining the base rate down to 1%, made little difference to the value of the US$ on the markets.

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