As you may have read the Bank of England kept interest rates unchanged at 0.5% last week. The bigger surprise to come out of the announcement was the decision to not increase the size of the quantitative easing package that they introduced a couple of months ago. This sign of confidence quickly spread into the currency markets and gave Sterling strength across the board reinforcing the positive period the Pound has had over recent weeks against most major currencies.

This unexpected window of opportunity is certainly a time when those of you needing to make significant currency exchanges at any point during 2009 should consider the benefits of locking into a forward contract. This contract type allows you to lock into current exchange rates for anything up to two years ahead.

Not all good for the Pound
On Friday the PPI (Producer Prices Index) report showed that UK manufacturing profit margins came under pressure last month. Given the recent rise in oil prices and the drop in the value of Sterling, producer input costs rose in excess of 1% in June. Nonetheless, this would still leave input prices down almost 12% on the year. Moreover, Fridays report showed that the ability of UK manufacturers to pass on cost increases remains limited, with both headline and core output prices forecast rising by only 0.2%.

The increase in manufacturing costs well in excess of increases on the high street will make the summer months even harder during a time when people are still reluctant to spend, until we see some strength continued strength for Sterling making the import of raw materials cheaper there is no reason why we will not see many more companies becoming insolvent, or at the least having to make more and more people unemployed.

The week ahead
A busy week of data ahead is highlighted by ECB President Jean-Claude Trichet’s speech this morning regarding the current state of the Eurozone economy. His comments should include information about any further economic stimulus packages that the European Central Bank may need to implement. As with the MPC last week an indication that not much more may need to be done should offer strength to the single European currency.

This is followed on Wednesday by UK CPI data for June, both month on month and year on year. On Wednesday we have the US Federal Open Market Committee minutes from their most recent meeting and the results of the interest rate decision by the Bank of Japan.

Any change in interest rates in the land of the rising sun would have significant impact on those looking into buying foreign currency as it is one of the primary currencies that is borrowed when investors strike "carry trades" – borrowing a currency at low interest rates to invest on one with a higher yield.

Is the madness beginning again?
The Nationwide Building Society has introduced a mortgage allowing borrowers to take loans worth 125% of the value of the home they are buying. Now surely this sort or irresponsible lending is partly responsible for the financial crisis we find ourselves in today, surely this is the time that regulators have to step in and set some firm guidelines about the amount of borrowing an individual can take out against a property.