Pound Sterling - UK Markets

Sterling has broadly strengthened overnight, gaining 2.52% on the US Dollar to trade at 1.6016 and 0.51% on the Euro to 1.2600. The Pound is also up against most of its major currency partners, with the exception of the Australian and New Zealand Dollars. 

Despite the negative sentiment reflected in the CBI Distributive Trends Survey and increase in Sterling Lending this morning, the Pound has gained strength along with global equity markets as government refinancing from previous weeks has begun to free up credit flows.

International share prices are also being aided by the prospect of an interest rate cut in the US later this evening, likely to be followed by the Bank of England and ECB. HBOS and RBS shares are 15% and 18% higher this morning and the number of new mortgage approvals in September has recovered from record lows in August, increasing from 32 000 to 33 000.

Nationwide housing prices are due tomorrow and UK consumer confidence data on Friday.

US Dollar - US Markets

The US Dollar has declined overnight in response to news that domestic consumer confidence is at its lowest levels since records began in 1967.

Low consumer confidence is a reflection of the ailing property market and unease over employment prospects in the US at present. In conjunction with weaker commodity prices and slowing consumer spending, GDP figures are expected to show a Q3 contraction in the US economy, likely to prompt hawkish action from the Fed.

The FOMC meets today and are widely expected to reduce interest rates by at least 0.5%, to be followed by the Bank of England and the ECB next Thursday.

We can expect some volatility overnight after the announcement of the Fed decision this evening.

Euro - European Markets

The Euro has also exhibited some weakness overnight, losing 0.51% against the Pound but up to 1.2706 against the US Dollar. 

European equity markets opened positively this morning in response to widespread expectation of co-ordinated interest rate cuts and the increasing sense of stability from international government interventions. Shares in Deutsche Bank, Axa and Nokia rallied 8% and the MSCI World Index gained 2.4% after more than $12 trillion has been erased from stocks this month. World News Feed

In Hungary, the IMF and EU have agreed on a €21 billion rescue plan for the plummeting Forint which is on the verge of collapse as risk aversion characterises markets. The Icelandic owned budget airline Sterling has also filed for bankruptcy this morning.