This week saw sterling loose a lot of ground against the major currencies, particularly against the Dollar. The pound is down to 1.8548 this morning compared to 1.9929 achieved on Thursday last week.
The greenback was boosted by prospect of an US benchmark rate increase due to higher than expected inflation data. A sharp fall on the price of oil has also allowed the Dollar to gain major ground against both the Pound and Euro.
The forecast for sterling is also fairly negative, Wednesday’s inflation report highlighted low growth and high inflation for the coming months causing the pound to loose nearly 2% against the Euro.
A weaker pound will add further inflation pressures to the UK economy, therefore possibly tipping CPI above the 5% psychological level. Next week will also see a revised second quarter report showing an almost 0% growth, therefore we could well see sterling loose further ground.
The prospect of almost zero growth in the Eurozone and UK should leave the GBP/Euro trading range relatively narrow.
Interest rates:
Period rates are marginally higher this week following the Bank of England’s inflation report, which highlighted that inflationary pressures would make a cut unlikely before year end.
Libor three month forward currently stands at 5.78% and Euribor at 4.97%. Whilst in the US it stands at 3.08%
Equities:
Fall on commodity prices has boosted some stock markets around the globe, particularly in the US and the FTSE 100 but excluding the Eurostoxx 50.
Overall global equity boost will depend upon improvements on world economic growth. With central banks around the world unable to rely on interest rates to boost growth, further commodity prices drop will be most welcome.
Commodities:
Brent crude has eased down to $112/barrel (1month forward), gold dropped by 8% this week alone to $790.10.
By Regis Grant