Dollar Falls against Sterling, Euro
Pound Sterling - UK Markets
Sterling rebounded versus the Dollar yesterday for the second time this week, up to 1.7680 this morning. The Pound also gained against the Euro, gaining 0.28% to trade at 1.2551 and gained against the Yen, NZD and a basket of other major currencies
Bank of England Governor Mervyn King, speaking to the Treasury Select Committee yesterday, acknowledged the challenges facing the UK economy at present and reiterated the statements of Trichet in urging banks not to look to Central Banks to support their liquidity. He announced the Special Liquidity Scheme to end as scheduled on October 22 and indicated that gradual relief for financial institutions could be expected over the coming months.
The next big announcement for the UK is inflation data on Tuesday which will determine the path of interest rate cuts. At present economists are predicting a 0.25% cut in base rates in the first quarter of 2009.
US Dollar - US Markets
The Dollar marginally declined yesterday against its major currency partners as the Lehman Brothers continues to plague US markets. The collapse of the deal with Korean Development Bank has plunged Lehman stocks into a freefall and negated any positive effects the Freddie Mac and Fannie Mae takeovers might have had for markets.
Further news illustrating the depth of the credit crisis in the US came in the form of the trade deficit, which has increased from 58.8 billion in June to 62.2 billion at present. Running at 5.2% of GDP, the deficit is a significant drag on economic growth.
The growing deficit, in conjunction with the credit crisis, is driving up unemployment as US dependence on imported goods and services remains high. Economists predict the recent surge means unemployment could remain high and growth continue to slow throughout the third and fourth quarters.
Euro - European Markets
Results have been mixed for the Euro recently, down against the Pound overnight to reach 0.7964, but up against the US Dollar to 1.4083. Having recovered from reaching new lows versus the US Dollar, economists suggest the medium term outlook remains negative for the Euro as news of slowdown throughout the region filters out.
Trichet adopted a similar stance to King in his speech yesterday, urging lending institutions to ensure their own liquidity.
In other news, oil prices fell to $98 a barrel in the wake of Saudi Arabia's decision to continue production at maximum levels despite OPEC calls to the contrary.