Pound Sterling - UK Markets

The Pound jumped against the Dollar overnight, to trade at 1.8051 as news of the Lehman Brothers bankruptcy reverberated throughout currency markets. 

Sterling gained 2% as downward pressure on the dollar intensified following the Lehman news, benefiting the pound in currency trades but affecting stock and share prices negatively throughout the UK and Europe. The Bank of England is monitoring Sterling performance and has commentated they will act to stabilise Sterling if necessary.

The UK retail price index is due tomorrow with implications for the Pound, but it is likely US news will continue to dominate the markets this week.

US Dollar - US Markets

The ascending dollar has been stopped in its tracks following news of the Lehman Brothers filing for bankruptcy. The claim is the largest in US history with the 158 year old Bank owing over $613 billion due to the sub-prime mortgage crisis. The claim was filed following the collapse of offers from Barclays and Bank of America to buy the beleaguered bank in a firesale.  

Bank of America also acquired Merrill Lynch for $50 Billion, prompting Bloomberg to report of a ‘tectonic' shift in America's financial landscape.

The Dollar tumbled in response to the news, which has abruptly cut short the honeymoon period that was expected following the government bail out of Freddie Mac and Fannie Mae. There is mounting speculation the Fed will cut rates to ease uncertainty following the Lehman debacle, contributing to further pressure on the Dollar.

The interest rate decision is due tomorrow and the dollar declined against all major currency pairs with the exception of the Yen overnight. 

Euro - European Markets

The Euro is down against the Pound, still trading sub 0.8 at 0.7941 but up against the USD to 1.4337.

Lehman news caused the Euro to hit an 11-day high of 1.4482 against the US Dollar and a 5-day high of 0.8010 against the Pound. It has since eased back from both.

Euro area inflation is out this week and ECB President Trichet is giving a speech this morning regarding latest events in the European economy.