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Posted September 14th, 2009 by Charles Purdy

Weekly US$ rates and comments – week commencing 14th September 2009

Sterling had a better second half to last week following the Bank of England meeting on Thursday. The market was nervous following August’s meeting when they were surprised by the BoE increasing their programme of quantitative easing by £50bn. This surprise was then compounded when the minutes of the meeting were released and it was noted that the Governor of the BoE had voted for a £75bn increase rather than £50bn. So when the BoE announcement was released Thursday lunchtime and there had been no change to UK interest rates and no increase in the quantitative easing programme, sterling regained lost ground. Strong UK industrial production figures released last Tuesday probably means that the UK economy expanded in the three months to the end of August, the first increase for over a year. This week we have the following UK data for August; inflation which is expected to show a reduction to 1.4%, unemployment which is expected to show an increase to 8% and UK retail sales which are expected to increase by 0.4%

 

 

The US$ which, as I write sits at US$1.655/£1 inter bank, had a bad week last week losing ground against most currencies including sterling and hitting a 12 month low against a basket of major currencies. A mixture of reasons have been cited from the gold price passing through US$1,000, talk about finding an alternative to the US$ as the worlds reserve currency but the most significant reason seems to be on the rise in stock markets leading to increased risk appetite and the search by investors for higher yielding assets. This week we have a raft of US data. Retail sales are expected to show an increase in August from the previous month of 1.7% but a 3% decrease year on year. Industrial production is expected to show a similar trend increasing 0.7% over the previous month but a fall of 11.5% over the year. The US is also experiencing deflation given the high unemployment and spare production capacity with August figures expected to be -1.7%. And finally we have the current account deficit for the second quarter released on Wednesday and the expectation is for a reduction from the previous quarter. A bit like the UK, economic performance is improving but interest rates will be kept low for a long time.

 

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