Foreign Currency Exchange

Last week saw the US Dollar continuing to strengthen against the pound at the start of the week, hitting the 1.74 mark, before returning back up towards the 1.80s by the end of the week.

Friday evening saw Hurricane Ike hit the gulf coast of Texas, paralysing one of America’s largest oil refineries, causing a slight rise in the price of oil, which weighed on the dollar. We also had news of further problems in the US banking industry over the weekend with investment bank Lehman Brothers filing for Chapter 11 Bankruptcy, and asking for a government bailout, similar to the ones we saw for mortgage underwriters Fannie Mae and Freddie Mac. Merrill Lynch also agreed to sell itself to Bank of America, suggesting its problems were more serious than investors had realised.

Given all the negative news coming out of the US, it is surprising that the dollar has not fallen further against the pound into the mid-1.80s. This emphasises the weakness of the pound, as the dollar has made more significant losses against other currencies, although we should not rule out the possibility of the pound making gains against the dollar over the next week.

This week sees inflation data from both the UK and US released on Tuesday, with Bank of England minutes and UK retail sales data out later in the week, which are likely to weigh on the pound, therefore it is possible that we may see the best rates at the start of the week.