Currency Update – Monday 15th September
The events of the weekend reverberate around the world as Liverpool finally managed to beat Man United in a league game. There has also been some big changes in the banking world as the United States’ 4th largest investment bank, Lehman Brothers, has failed to find a backer, with Bank of America and Barclays interested, but failing to pull the trigger. Bank of America were saving themselves for a merger/takeover of another large US bank, Merryl Lynch, who were also seeking a backer to keep the wolves from the door. The worries over the financial sector in the US coupled with weak retail figures out at the end of Friday, have led some to expect rate cuts at tomorrows FOMC meeting, although it is hard to see how that would help liquidity in the banking sector.
Stock markets have fallen on the back of the weekend’s news, and the Dollar has followed. Sterling has managed to climb above 1.80 against the Dollar, and the Euro has clawed back some of it’s losses, back above 1.42 against the Dollar. After the bail out of Fannie May and Freddie Mac, some thought the market had reached a turning point, found a low, and would start to recover, however it seems many were far too complacent, and unlike Bear Sterns, or the two mortgage companies, this time the Federal reserve haven’t intervened and have let Lehman Brothers crumble. Just a few moments ago the UK arm of the bank were put into administration.
The Market’s attention is firmly fixed on the problems in the US so Sterling sits roughly where it was on Friday around 1.26 against the Euro.
There is little economic data out today as markets digest the weekends events and look towards the reaction of the US markets when they open this afternoon. It is a busy week for the UK though, with CPI figures out tomorrow, BoE minutes from the last meeting released on Wednesday, and Retail sales figures on Thursday. The expectations are for inflation to spike up higher again, retail sales figures to fall, and the BoE to indicate that they are stuck between the two horns of the dilemma of a weakening economy and rising prices.
Michael Corcoran – Assistant Manager |Treasury Solutions | nabCapital™