Pound Sterling - UK Markets

Lloyds TSB is to acquire HBOS in $22 billion pound merger, the biggest in British history. The merger, announced yesterday and designed to inject a degree of stability for volatile British markets, will create a ‘superbank' with a 28% share of British mortgage market and one third of all savings accounts.

Critics of the merger argue it is a “shotgun marriage” which will have negative implications for consumers, rising unemployment levels and market competition.

Following news of the merger, the Pound gained 1.58% overnight against the Dollar, up to 1.8181. It was also up 0.43% to 1.2702 against the Euro and gained against all its major currency partners.
MPC minutes released yesterday reveal members voted 8-1 to keep interest rate cuts on hold. David Blanchflower was the dissenting voice in the ranks and has been critical of his MPC colleagues in the past for favouring inflation rates in favour of growth statistics. The Bank of England also announced the extension of its Special Liquidity Scheme to alleviate pressures in financial markets in the midst of the current crisis.

UK Retail Sales and Money Supply data is due this morning - key statistics for the MPC in future.

US Dollar - US Markets

The Dollar declined 1.5% against Sterling overnight.

The US Government has made $180 billion available for lending in an attempt to restore confidence and stability following the seismic events this week.

Sub-prime write downs are diminishing stock value of Banks by up to 80% in some cases, allowing large institutions to be snapped up for a steal by competitors. Following Federal bail outs of Freddie Mac, Fannie Mae and AIG, bankruptcy of Lehman and Merrill Lynch and mergers in the UK, is the news that Washington Mutual may get bids from competitors banks. All eyes are on the remaining investment banks in the US to see who will survive this crisis.

Euro - European Markets

The Euro is down 0.35% against the Pound to 0.7869 but jumped 1.30% against the US Dollar to 1.4312. The Euro also posted gains against the Yen, Australian, New Zealand and Canadian Dollars.