The currency blog

George Osborne has said that banks must increase lending to businesses rather than boosting bonuses and dividends now that they have weathered the worst of the credit crisis. Britain’s Treasury chief told the Sunday Telegraph newspaper that banks “have an economic obligation to assist” small and medium-sized businesses. The statement comes in line with half-year figures released this week that are expected to confirm that the major institutions have returned to profit after two years of turmoil. Lloyds Banking Group, which is 41% owned by the taxpayer, and the 84% state-owned Royal Bank of Scotland are both expected to post a profit. But Osborne questions the ability of British businesses to raise credit from the banks. “The danger is that, particularly next year, when there is a huge amount of refinancing required, that the small and medium-sized businesses suffer from a lack of access to working capital,” he said. Osborne continued that British banks “are in no doubt that the government wants to see reasonable access to credit on reasonable terms in the small to medium-sized business sector.” The expected bank profits have boosted the recent Cable rally and we are now trading in the 1.58s and well on track to the key 1.60 psychological level.

On Friday, the Dow Jones fell by as much as 120 points after annualised growth in gross domestic product (GDP) was found to have slowed from 3.7% in the first quarter to 2.4% in the second. That came on the back of growth of 5% in the final three months of 2009. The US was initially thought to have grown by 2.7% in the first quarter but that was revised upwards on a day of surprises for economists. The US Commerce Department also revised downwards GDP figures all the way back to the beginning of 2007. The second-quarter slowdown led economists to question whether the US might be poised to enter a period of negative growth later in the year, leading to a much-feared double-dip recession. The Dow Jones fell sharply after the release of the GDP data before recovering ground to settle down 40.72 at 10,426.44 in lunchtime trading. Economists had predicted second-quarter growth of 2.5pc, but their disappointment was compounded by the revised data for the first three months of 2010. The biggest concern in the City was the size of the downward revisions to previous years’ growth. In 2009 the economy was previously estimated to have declined by 2.4%, but the figure was revised to a drop of 2.6%. The disappointing growth numbers were compounded by the International Monetary Fund’s (IMF) annual report on the US economy. The IMF said there may be a need for the Obama administration to increase the amount of fiscal stimulus in order to boost the recovery, warning the “outlook remains uncertain”.

As we look ahead this week, Interest rates will watched closely with monetary policy meetings taking place in several countries over the next 4 days. Tonight, Australia get the ball rolling followed by the UK, Eurozone and The Czech Republic all on Thursday. Following the softer than expected Australian CPI figure, the Reserve Bank of Australia are now deemed unlikely to move rates - a change away from the previously anticipated tightening - despite the stronger, but very volatile, manufacturing PMI number. No change from the BoE or the ECB is also on the cards but as usual, it will be the post-meeting press conferences that will draw the market’s attention.

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