US stock markets fell by the largest amount in over 20 years yesterday as the US House of Representatives voted against the proposed $700bln bail-out package sending investors running for cover and undid all the good work that had earlier seen 5 US and European banks propped up or nationalised in a worldwide liquidity operation of biblical proportions. Republican member are largely being blamed for the defeat as GOP members voted almost 2-1 against the proposal. An agreement had been set that equal numbers of Democratic and Republican members would vote yes so as to insulate both parties in the upcoming election and take away the issue as a potentially partisan dividing issue. This however was to no avail and we will have to wait at least until tomorrow for a revote as today is Rosh Hashanah, the Jewish New Year, and Congress is in a recess.

Dollar weakened after the vote however was soon back on the front foot in a somewhat paradoxical manner. The explanation that we side with is that as much as the US economy is on the skids because of the no vote the USD is still seen as a ‘safe’ asset and will attract fear investing. Other ‘safe’ currencies such as JPY and CHF have strengthened markedly overnight whereas currencies predicated on commodities (AUD, NZD, ZAR) are lower. Gold, another flight to quality asset class, hit a 2 month high in the aftermath of the day’s trading.

The day ahead will obviously be overshadowed by the fallout of Congress’s decision and at the time of writing FTSE futures are pointing to over a 3% fall come opening. GFK consumer confidence showed overnight that the blip higher we saw at the beginning of the month was only that and that the latest round of financial peril has hammered sentiment once again. UK GDP is also due today and consensus views are of a 0% reading; a negative figure being a harbinger for recession. Eurozone inflation estimates and German Retail sales are also due today.

Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080. Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.