Sterling again held the middle ground. The Governor of the Bank of England highlighted the problem of rising costs and a faltering UK economy. UK Inflation could be as high as 3% by year end whereas the target is 2%. As a result, the market has tempered its expectations as to the speed and extent of UK interest rate reductions. I still believe sterling is oversold [i.e. sterling should strengthen over the medium term but the reality could be a lot different] but beware if there is another major shock like Northern Rock as we would see sterling slide rapidly.
The € sits at €1.330/£1 inter bank. Euro land cannot defy gravity and be an economic wonderland as all around is failing. It is very dependent on the US and UK as trading partners and as they suffer Euro land will begin to suffer. Interest rates were held by the European Central Bank. Germany saw a rebound business confidence albeit from historic lows. The € has a feeling of a safe haven currency at the moment and offering a reasonable yield but I continue to wonder how long this will last.
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