CURRENCY UPDATE – Monday 21st April 2008

CURRENCY UPDATE – Monday 21st April 2008

Sterling continued its advance at the end of last week, boosted by the news of the Bank of Englands bail out of the UK banks, and reports that the Royal Bank of Scotland are set to launch a massive rights issue to recover some of their reserves. The RBS rights issue will obviously be issued in Sterling and is likely to attract overseas investment, boosting the demand for the Pound. However it is the BoE news that dominates the headlines today as they announce the details of what is being called the most ambitious, and generous, central bank strategy to combat the credit crunch. The plan to swap mortgage backed securities for treasury bills, at a discount, to the tune of 50b, with the possibility of more if needed.

On Friday and at early opening today, Sterling was up near 2 against the Dollar, and 1.2650 against the Euro, but weve had a Rightmove House Price survey this morning showing yet again a slowing of growth, the slowest in 3 years, and Sterling has fallen towards 1.99 against the USD, and below 1.2550 against the Euro. The single currency was also boosted by German producer price inflation, which came in higher than expected, giving extra credence to the ECBs concerns of Euro inflation, and keeping the Euro high against the USD around 1.5850.

It's a quiet start to what could be an important week. Apart from the already released house price survey there is nothing out of note in the US, the Eurozone, or the UK, and nothing out in the UK at all until the crux of the week on Wednesday when we get the BoE minutes, and on Thursday when it is retail sales that could hurt Sterling. With no new data out it is looking like Sterling will be given little extra support to keep it up at last weeks, relatively, elevated levels, and could suffer throughout the day.

Michael Corcoran - Assistant Manager |Treasury Solutions | nabCapital | A division of National Australia Bank Limited

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