Pound sterling - UK Markets

Sterling is largely unchanged overnight, down 0.01% against the Euro to 1.2814 and up 0.07% against the US Dollar to 1.7436.

Equity markets have experienced a cautious recovery after the Prime Minister's bail out package has indicated the government simply won't let the situation get worse. Never short of an opportunity for politicking, Boring Gordon has completed a metamorphosis into Flash Gordon in the last 3 weeks and is even sneaking some comparisons to Churchill into his rhetoric. The challenge now, is for the government to facilitate inter-bank lending and revive the flow of credit for some degree of normalcy to return to uneasy markets.

Domestic data reveals UK consumer price inflation has reached a 16 year high 5.2% in September, ahead of economist predictions of 5% by Christmas. Up from 4.7% in August, the rise is reflective of peak oil and gas prices over summer feeding through to inflationary figures and the weakening of Sterling internationally. Despite a dismal growth outlook, inflation is likely to fall away soon as the recent drop of oil, currently in the vicinity of $80 a barrel rather than the $147 we saw over summer, and commodity prices trickle through to consumers.

Labour market data from the UK due today is likely to have repercussions for Sterling, crucial as it is to consumer confidence and household spending.

US Dollar - US Markets

The US Dollar is down against both the Pound and the Euro this morning, as a day of trading that began strongly was hampered by a return to unease over growth prospects in the markets.

The US government made $250 billion dollars available yesterday for preferential shares in 9 major banks, making the US taxpayer the largest shareholder in the country. Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America, Merrill Lynch, Citigroup, Wells Fargo, Bank of New York Mellon and State Street are the first to benefit from the scheme, with smaller community banks to follow.

The “unprecedented and aggressive” plan led to a strong opening on Wall Street but gains ebbed later in the day, with the Dow closing 0.8% down as relief gave way to real economic concerns.

In the US today, retail sales data and the Fed Beige Book are released, followed by Consumer Price Indices for food and energy tomorrow.

Euro - European Markets

The Euro gained 0.23% against the US Dollar overnight and was down 0.01% against Sterling with a mixed bag against other major currencies.

Concerns about global economic downturn could mean a day of conservative trading for European markets as ECB leaders meet to discuss reform for financial markets.

Germany's Consumer Price Index has fallen 0.1% from August, running at 2.9% for the year, again largely driven by the increase in food and fuel prices. The ECB target is below 3% and further EMU Consumer Price Information is due this morning.