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Disclaimer: THIS MATERIAL IS NOT INVESTMENT RESEARCH AS DEFINED BY THE FINANCIAL CONDUCT AUTHORITY

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The pound has benefited against the US dollar this morning as the Lehman Brother story floods the financial markets. Yesterday sterling traded down to a low of $1.7443, this morning the pound is trading over two and a half cents higher above $1.77.

Sterling is also fighting back against the Euro heading for its first weekly gain in five, having traded down to a low of 1.2211 last week yesterday traders tested the key 1.26 level. This morning sterling has failed to hold onto its gains trading back around the 1.2550 level. There seems to be a lot of speculation gains by the single currency are overdone.

The Bank of England’s governor yesterday warned UK mortgage lenders not to rely on the central bank to provide support through the credit crisis and bail them out like the US has done with Freddie and Fannie.

Friday 12 September 2008, 11:54am

The US dollar rose to the highest in a year against the single currency on growth differential speculation, market participants are expecting the European Central Bank to cut borrowing costs.

The European Commission claimed the Euro region’s economy is likely to stagnate this quarter after shrinking for the previous 3 months for the first time since the currency’s debut in 1999. The 2008 growth forecast has been cut to 1.3% from 1.7%

The Euro Zone economy is facing a recession and so a weaker currency could provide relief to exports.

On the 15th July 2008 the US Dollar traded at a low of 1.6038 against the Euro, yesterday the single currency was smashed back below the 1.4000 level. This morning the 1.39 level has been tested as the Euro selling continues.

Thursday 11 September 2008, 11:34am

The US Dollar strengthened to a 26 month high against Sterling and traded close to an 11 month high against the Euro. It seems that the US Dollar has been moving with confidence as the government has taken control of the mortgage giants. The mortgage providers used accounting “loop holes” to build a “house of cards” as the housing market plummeted. It seems that there simply was not enough capital.

Regardless of the uncertainty behind two of the largest mortgage finance companies, it seems that traders are confident the issues are under control and safely in government hands. The dollar is not showing any signs of weakness, the greenback now looks to be the currency of choice for the investor.

Prior to August the dollar was severely over sold against the Euro and the pound, the come back since has been aggressive and ruthless. Very rarely do markets move with such conviction. The explosive move will not continue as it has been, shortly we should see a retracement as market participants take profits on long dollar positions. After which it is likely in the medium term that the US Dollar uptrend will continue.

Tuesday 09 September 2008, 11:22am

The US Government launched the largest financial bailout in history yesterday; supporting two of the nation’s largest financial companies in effect the government is now directly responsible for the companies that issue around 75% of new home mortgages.

On Friday the dollar was sold on the back of worse than expected unemployment and non-farm payrolls data, the greenback lost even more ground over the weekend as markets digested the Fannie and Freddie story. Since early morning trade the dollar has bounced back and at one point traded down to 1.7562 against the pound.

The EUR USD has seen a similar move breaking to a low of 1.4164.

Monday 08 September 2008, 02:18pm

The dollar continues to rally pushing the EUR/USD below 1.50. The weakening of the Euro has also had a knock-on-effect against Sterling, the pound hit a 3 month high against the single currency. The greenback posted a new high on the year against the pound. Traders are expecting to see a clearer indication whether or not the dollar has broke free from its down trend by the end of this week, having said that it is clear from the price action that investors are already positioning themselves backing rumours that it is likely that the US dollar will be the first major currency to get through the financial downturn.

Monday 11 August 2008, 11:13am

The Bank of England’s Monetary Policy Committee left rates unchanged at 5% today, the decision was widely expected. The bank is clearly in a tough position, the outlook for growth is weak and inflation is becoming a serious concern. Sterling stayed close to a 7 week low against the Euro.

After a previous hike in rates by the ECB last month, today they have decided to hold tight at current levels. The Euro was sold aggressively against the US Dollar as Trichet suggested second-half economics to slow implying the ECB are unlikely to raise interest rates again this year.

Thursday 07 August 2008, 04:29pm

The US Dollar consolidated on the gains made against the pound and Euro. The FOMC voted to keep lending rate steady at 2% for a second consecutive meeting. The Federal Reserve noted in their comments the upside risks to inflation were a significant concern. Many traders were disappointed as they were expecting a hawkish statement. Recently the dollar has been helped by a weak pound and a Euro that seems to be coming under more pressure.

Wednesday 06 August 2008, 03:51pm

The pound plummeted to a six-week low against the greenback as HSBC Holdings reported steep earnings decline. Against the Euro, Sterling fell to its lowest level in 2 weeks. Sterling was the second worst performer among the 16 most actively traded currencies today after the Sunday Times claimed analysts as saying the Royal Bank of Scotland may report a pre-tax loss of 1 billion pounds this week.

Monday 04 August 2008, 06:16pm

Cable had a fairly range bound day yesterday as the US Dollar consolidated the gains made on the previous day. Negative data flooded the news wires yet again, UK Consumer confidence fell to its lowest level since the first recording in 1974. House prices posting the largest annual drop for more than 16 years did not help the pound. The economy is now edging closer to recession. The average house price has dropped 8.1% from a year earlier.

Cable does not seem to feel comfortable above the $2 level anymore, since the beginning of April each time we have traded above the key psychological level we have seen a rejection. It would not be a surprise if traders plan to retest the 1.94 level in the coming months.

Thursday 31 July 2008, 10:17am

Sterling has a very mixed day against the majors yesterday, rallying sharply against the euro but was sold aggressively against the US Dollar. Long term inflation expectations fell which is good news for the Bank of England to digest, this may give them more room for flexibility on rates.

The US dollar hit a five week high against the Euro making a two cent gain to trade at $1.5552.

This morning the UK telegraph reported Italy is sliding into a deep structural crisis and risks being forced out of Europe’s Monetary Union as the region’s economic downturn gathers pace. Comments like this should keep the pressure on the Euro for some time.

Wednesday 30 July 2008, 11:32am

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