Sterling Continues to Slide

The Pound continues to slide against its European and US counterparts, striking new lows almost daily, in what Darling has claimed is the worst state the UK economy has seen in 60 years.

This morning at 0.55419 against the US Dollar and 0.81177 against the Euro, the Pound remains weak, with the decline reinforced by negative perceptions and media coverage surrounding the UK economy. A barrage of negative data concerning the housing market and inflation has wounded consumer and investor confidence. Darling's comments generated further negative press over the weekend and the question this week will be just how long the Pound's slide can continue.

Similarly, the Euro has posted its steepest monthly decline ever against the US Dollar, as data from the Eurozone displays evidence of economic contraction. 

By contrast, the Dollar has continued to rally as news worsens for other major currencies with the US, Yen and Australian Dollars all in a state of relative health. The Yen has gained from risk-aversion tactics of investors, trending upwards against all the major currencies for the last week. The Aussie Dollar has responded well to better than expected data last week regarding confidence and growth. 

Interest Rates

Interest rate decisions will be the subject of much discussion and market fluctuation this week with announcements from the ECB, Bank of England, Reserve Bank of Australia and Bank of Canada all due.

Speculators say the ECB is expected to leave its main interest rates unchanged at 4.25% despite mounting evidence of economic contraction in the Eurozone. The Bank of England is also expected to remain conservative in their decision, leaving rates at 5% suffering criticism from some sectors for not acting decisively enough. 

David Kern, economic adviser to the British Chambers of Commerce, has commented that although the situation is negative, the MPC cannot ignore its own data for too much longer and must start cutting rates in October or November. It is widely thought that interest rates will be kept on hold at 5% with the prospect of a cut later in the year.