Markets, both equity and FX, are a real mess this morning as rumours float of further bank crises, Chinese stimulus packages and a still faltering US jobs arena.

Overnight there were rumours that a large US bank would have to be nationalised and another would need a significant capital injection to keep it from falling over. The nationalisation speculation has proved to be unsubstantiated at the time of writing however Bank of America has been pledged $20bln from the TARP fund to keep its doors open. Needless to say this has led to an increased risk atmosphere although Asian stock markets have pared their early losses.

As we predicted yesterday the ECB took rates down to 2% as it cut by 50bps. The market’s reaction was a more predominant weakening of euro against USD than against GBP and we still believe the GBP/EUR cross is in a downtrend. In the subsequent press conference Trichet outlined that the ‘cutting holiday’ we spoke of yesterday would probably materialise in February with the market predicting another 50bps cut in March.

The euro may be undercut this morning as the Irish government has decide to nationalise AIB; making the Irish taxpayer liable for another €40bln of bank funds.

Apart from the ECB release yesterday was chock full of US data both good and bad. Initial jobless claims rose to 524,000 as poor credit conditions for businesses and a lack of spending by consumers hurt retailers, manufacturers and distributors alike.

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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.