CURRENCIES

THE pound is expected to give back some of last week's 4-pfennig advance against the mark as economic reports this week, including retail prices and sales, show growth waning. Evidence of slower domestic growth would raise the likelihood that the UK will cut interest rates, as would the US Federal Reserve when its rate-setting committee meets on Tuesday. Lower UK rates would undermine the money-market return on sterling, making it less attractive.

"We expect sterling to resume a degree of weakness in the short term," said Jonathon Griggs, head of foreign exchange research at ING Baring Securities. "The defining event of next week will be the Federal Reserve decision. If it comes through with a cut, and if next week's UK reports are weak, we could see renewed expectations that the Bank of England will cut rates in December."

Sterling rose 1.4 per cent to a six-week high against the mark last week as investors scaled back expectations for a December rate cut by the Bank of England after the bank's quarterly inflation report raised inflation concerns. The pound was trading on Friday at DM2.8108, up from DM2.8001 on Thursday. It was at $1.6645 from $1.6607.

The Bank of England cut its benchmark rate half a point to 6.75 per cent the week before last, the second cut within a month, and more than expected. The next rate-setting meeting takes place on 9 and 10 December.

In last week's inflation report, the central bank said higher wages would nudge inflation above its 2.5 per cent target during 1999 before falling back to target in 2000. Sterling jumped along with short-sterling yields, suggesting investors thought they'd been expecting too much in the way of rate cuts.

The implied yield on the December sterling interest-rate futures contract, a measure of UK rate expectations, rose 2 basis points to 6.80 per cent on Friday. That yield rose 12 basis points the previous week and, at just 14 basis points below current three-month borrowing rates, suggests fading expectations rates will be cut again this year.

"There's probably nothing left in the way of lower rates this year," said Kevin Adams, a strategist at Barclays Capital.

Reports this week, though, could change investors' views yet again. Retail prices minus mortgage interest payments set for release on Tuesday, is forecast to slow to 2.4 per cent in October from 2.5 per cent in September.

October retail sales are expected to rise 1.6 per cent, down from September's 3.7 per cent gain. On Friday, a gross domestic product report should show that growth slowed to an annual 2.5 per cent in the third quarter, from 3.0 per cent the quarter before.

"Whether rates are cut again this year or not isn't really important," said Paul Causer, at Perpetual Investment Management. "The point is rates have to go much lower next year."

Mr Causer said rates could fall "to 5 per cent or even below" in 1999, which suggests "sterling will continue trending lower". He expects the pound to fall to the equivalent of DM2.70, and to $1.60, in the next three months.

A US rate cut could also push the Bank of England to lower rates again this year since it would suggest that the threat of a global economic slowdown hasn't receded.

A survey of economists at the 32 primary dealers, which deal directly with the Fed's securities trading desk, found that 30 expect the Fed to lower rates for a third time in eight weeks when they meet on Tuesday. Two foresee no change.

Life and Style
tech

Sales of the tablet are set to fall again, say analysts

News
A Brazilian wandering spider
news

World's most lethal spider found under a bunch of bananas

Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

News
Nigel Farage has backed DJ Mike Read's new Ukip song
i100
PROMOTED VIDEO
Life and Style
tech

Company decides to go for simply scary after criticising other sites for 'creepy and targeted' advertising

Sport
Mario Balotelli pictured in the win over QPR
footballInternet reacts to miss shocker for Liverpool striker
News
news

Footage shot by a passerby shows moment an ill man was carried out of his burning home

Voices
Sol Campbell near his home in Chelsea
voices
News
i100
News
Kimi the fox cub
newsBurberry under fire from animal rights group - and their star, Kimi
News
ebooksAn unforgettable anthology of contemporary reportage
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

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past