Currencies

THE pound is expected to be little changed this week, trading below DM2.90, as investors await reports that suggest whether interest rates have peaked - or may even be poised to fall.

"Interest rates have probably peaked," said Adrian Schmidt, senior economist at Chase Manhattan Bank, who expects the pound to trade above DM2.85 this week. "The difficulty is deciding when rates are likely to come down."

On Friday, the pound was little changed at DM2.8926, down from about DM2.9100 a week earlier. Against the dollar it fell to $1.6320, from $1.6370 the previous Friday.

The majority of City economists say borrowing costs have now peaked, after the Bank of England left the benchmark rate at 7.50 per cent on Thursday. With rates unchanged, the return on pound-denominated deposits also stays the same.

Some think the slump in manufacturing, which is spreading to the rest of the economy, may be strong enough to convince the central bankers to cut rates by the end of the year.

"The UK economy is slowing," said Denis Gould, a fixed-income fund manager at Axa Sun Life Investment Management. "Rates may come down in the fourth quarter but more probably in the first quarter next year".

Mr Gould said he sold sterling about six months ago when he expected rates would not go much higher. He expects the pound to fall to DM2.75 and $1.60 by the end of the year.

The yield on the December short sterling futures contract, a measure of interest-rate expectations, has fallen 11 basis points to 7.53 per cent since Thursday. That suggests growing expectations that borrowing costs may fall by the year-end.

Still, the quarterly inflation report and a report on average earnings, both due on Wednesday, may revive concern that rates will rise again.

Also slated for release that day are the minutes from the Bank of England's July policy meeting, at which rates also were left steady.

Economists expect average wage growth to have slowed to an annual rate of 5.2 per cent in May from 5.4 per cent in April.

"The bank is likely to remain concerned about the inflationary pressures from a tightening labour market," said Philip Shaw, chief economist at Investec.

Meanwhile, the central bank's inflation report will note that there are broad signs of a slowdown in the economy but will probably also state that the risks to the bank's inflation target remain on the upside," said Mr Shaw.

The dollar rose to its highest level in almost two months as Japan's prime minister disclosed no new plans to revive the country's faltering economy and as Asian currencies fell on speculation that China may devalue the yuan.

"People were holding off selling the yen on the possibility of surprises by Mr Obuchi, and of course we got none of that,'" said John Rothfield, international economist at NationsBanc in Chicago.

"There was a risk of him pulling a rabbit out of his hat but there's no suggestion they'll turn their economy around very quickly."

The dollar rose as high as Y146.25, its highest since reaching an eight- year high of Y146.78 on 16 June, the day before the US and Japan sold dollars to buoy the yen.

The dollar rose to DM1.7808 from DM1.7740 as US stocks gained.

Start your day with The Independent, sign up for daily news emails
News
Johnny Depp is perhaps best known for his role as Jack Sparrow in Pirates of the Caribbean
peopleBut how did he break it?
Arts and Entertainment
Paul Walker and Vin Diesel in Fast and Furious 5
film
Sport
Lewis Hamilton secured his second straight pole of the season
f1Vettel beats Rosberg into third after thunderstorm delays qualifying
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss