Sterling could remain at par with the Dollar

The pound has been rather subdued where it has only gained ground against the dollar, and has weakened across the board where rates were kept at 2% last night as widely expected.

The slight move higher came about over night where the Feds policy statement read in part "although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased"…labor markets have softened further and financial markets remain under considerable stress".

The FED hopes that slower growth will ease inflationary pressures, but if that does not happen by the August 5th FOMC meeting, they will have to raise rates in September. Between now and then, there are 2 non-farm payroll reports and multiple inflation reports due for release, giving us a much better sense of how bad the US economy is faring and whether consumers and businesses can handle an interest rate hike.

The pound is expected to remain on even scales to the dollar as just as the US economy has falling house prices and higher energy costs, investors believe the MPC also has a difficult job to do in battling inflation as the primary objective whilst perhaps growth should now also be brought into consideration.

Bank of England outgoing deputy governor John Gieve said on Wednesday he believes the worst is still to come for the UK economy. Speaking during a roundtable discussion published in Prospect magazine, Gieve said that what started as a marked turndown in the commercial property market is now spreading to the housing market and that he expects "a downturn in economic activity over the rest of the year". "So the worst is definitely not over in that sense". Looking ahead, the May Inflation report will be closely scrutinized.

The Euro has held firm against the pound but tipped up against the dollar and the commodity currencies remain strong with higher oil and commodity prices although the Aussie has slowed down a little as the RBA minutes showed a more neutral tone recently as the bank noted that rates seem appropriate and that demand is softening.