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Posted June 16th, 2009 by Charles Purdy

Weekly US$ rates and comments – week commencing 15th June 2009

With little significant economic data last week and a quieter time for the under-fire Gordon Brown, sterling made the most of its chance to prove its recent trend was perhaps not the false dawn some had expected. Much of the focus for sterling has centred on the speculation that the decline in the UK economy is nearing or perhaps reached its end. Though several sources including the Bank of England and Chancellor Darling have warned against assuming that the recession is nearing its end, confidence surveys and economic data have reflected that conditions are still poor but not deteriorating as they had been in previous months. UK industrial production has increased marginally and the NIESR estimate of UK growth based on GDP showed a turnaround as of April with the improvements continuing through May. Further, steady improvements against the euro, which have continued at the start of this week, have lifted spirits, given the near-parity disasters at the start of the year and sterling has regained ground against the US$,  although on Monday it lost ground as risk aversion came to the fore. Today we have inflation data for the UK, the US and the Euro zone announced. All three areas are expected to show a continued decline and no increase is expected in the short to medium term given the level of spare production capacity throughout the world. UK unemployment will be released on Wednesday which is expected to show an increase.

 

US equity market rises have helped encourage more risk taking on the markets and so as we have seen in recent months, the US$ has suffered as a consequence of this. The improvements in US equity markets have been as much a result of the increasing optimism in global markets and so were unlikely to simply flatter the US$. US economic data including trade balance figures and the 6-weekly ‘Beige book’ published by the Federal Reserve caused little surprise. This week we have US industrial production data released today, which is expected to have fallen further, and US housing starts which are expected to have risen from Aprils low.

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