Currency watch: Bank to join public in spending

The Bank of England wants us to spend more money and whittle down our capital to try and keep the economy going.

Naturally this has been met with a certain amount of consternation by the British public, particularly savers who have already taken a beating throughout the financial crisis through a combination of inflation and almost non-existent interest rates.

Unfortunately it looks like the only way for the economy to keep its head above water as we move through the crucial 4th quarter. It also looks as though we, as consumers, will not be the only ones spending, with the Bank of England looking increasingly likely to crank up the printing presses and expand monetary policy by engaging in further quantitative easing.
 
The reason for the pronounced dollar weakness over the past two months or so is as a result of similar spending fears in the US.

The American economy has seen growth slow significantly and I would say there is a 70% chance that the Fed will expand the US money supply further to kick the recovery on.

These concerns have caused many investment banks to move their dollar predictions higher through the next 12 months; Goldman Sachs, for example, has moved its 12 month EUR/USD expectation from 1.38 to 1.55 and for GBP/USD it expects it to hit 1.85 by this time next year.

While we are not that bearish on the dollar we do expect similar weakness to be seen in the coming weeks and months.

Jeremy Cook, 07.10.2010