Pound Sterling - UK Markets

Sterling gained some strength overnight, catching its breath after the most dramatic week markets have seen in decades. It was up 0.86% to 1.8336 against the US Dollar but down against the Euro to 1.2645.

British share markets bounced dramatically on Friday, following news of the Federal Reserve's plan to buy up bad debts and house them in a government entity, alleviating remaining banks from the worst of the crisis. Royal Bank of Scotland and HBOS shares gained as much as 50% on Friday, allowing markets to end the week in a state of relative health, the discrepancy between opening and closing prices belying the week that intervened. 

The temporary ban on short selling and extension of the Bank's Special Liquidity Scheme have aided recovery and this morning Darling has pledged government support to the economy. We will “do everything we can to stabilize the situation" he commented earlier. 

Volatility is expected to remain the order of the day in this light week for UK data. The relatively low cost of oil at present, around $100 a barrel, has the potential to lower inflation, prompting speculation of interest rate cuts later in the year or in the first quarter of 2009. 

US Dollar - US Markets

Major news from Wall Street is that the two remaining investment banks, Goldman Sachs and Morgan Stanley, are to change their regulatory status after the weeks' events permanently changed the geology of Wall Street.

The Bush administration announced plans overnight to widen the scope of the $700 billion dollar Federal Rescue package to expand beyond mortgage securities.

In terms of currency, there is speculation that Paulson's plan may end the three month rally of the Dollar, as taxpayers bear the brunt of the rescue package. The downward draft could eclipse the short term gains felt in the wake of the announcement, yet the return to market fundamentals and stability the plan provides, are laying the foundations for recovery in the US and beyond.

US house pricing index and consumer confidence surveys are out tomorrow.

Euro - European Markets

The Euro is up against both the US Dollar and the Pound overnight, continuing the highs it has enjoyed over the Dollar in the recent week.

ECB President Trichet's speech is due today and the next major data from the Eurozone is the rate decision due October 2.