Pound Sterling - UK Markets

Sterling remains low against its US and European counterparts. Having strengthened slightly following news of the US bail out of Freddie Mac and Fannie Mae mortgage lenders, the Pound is expected to continue to benefit from the flow on effects of the decision which will give a degree of stability to the US mortgage market.

Today in the UK, the Producer Price Index, the British Retailers Commission Retail Sales Monitor and estimated GDP figures are due. Weakness in these areas could translate into further weakness for Sterling this week.

US Dollar - US Markets

The strengthening Dollar was stopped in its tracks overnight following news of the Government bail out of the US's largest mortgage lender. 

The Treasury voted to effectively temporarily nationalise Freddie Mac and Fannie Mae, in a rescue package designed to save the two mortgage giants. Together they are responsible for 50 % of US $12 trillion dollar mortgage market and the bail out is an attempt to stabilise the US housing industry.

The US Dollar dropped 2 cents against the Pound and was also down against the Euro, Yen and Australian and NZ dollars following the decision. The decline in oil prices, currently trading at below $106 per barrel, as well as news of Hurricane Ike have also conspired to prevent the dollar reaching new heights. However the dip is expected to be short-lived and the Dollar remains the strongest of the major currencies.

Euro - European Markets

Potential threats to the Euro came in the form of German sales data on Friday. German industrial production fell by 1.8% for July confirming weakness in the Euro zone.

Yen Dips in Response to Fed

The Freddie Mac and Fannie Mae decision caused the Yen to decline the most in 3 months as investors favoured a return to higher yielding assets. Koji Fukaya, a senior currency strategies tat Deutsche Bank has commentated that the “Yen is likely to weaken further” as the calling the decision to bail out the two lenders acts as “a big release of stress on the global financial system that will help improve risk appetite.”