Wall St ran red yesterday as Lehman Brothers toppled over and initiated proceedings to become the largest bankruptcy in history. Stock markets around the globe fell by as much as 5% throughout a day that will live long in the history of all connected to the markets. As news filtered through that Lehman would seek Chapter 11 protection dollar retreated wildly against its major crosses before gaining its composure in the afternoon.

Although the dollar is weaker than last week market participants are predicting this to be brief respite for sterling as investors now bet on how this will effect growth measures for the rest of the world; the fuel that has propelled the greenback to this position over the past month. Given the UK economy’s exposure to the financial services sector you could all but guarantee that sterling will be a target for these speculators.

It is a busy day of data today and I’d like to draw your attention to 2 of them. UK CPI is due at 09.30 and although forecasts vary all agree that prices will still be over the 4.0% level. Oil prices have dipped overnight to a 7 month low and will come as a relief to policymakers and motorists alike; prices are already starting to fall however we may have to wait until next month for a significant downward leg on the CPI measure.

In the midst of all the fun and games of the weekend, many forgot that the US Fed is due to meet today to decide interest policy for the next month. A week ago not a single analyst polled by Bloomberg was predicting a cut; now over 70% do. Falls on oil markets have alleviated some inflationary pressure however the elephant in the room is called AIG. The world’s largest insurer is in trouble and policymakers may see this as an opportunity to ease the flow of credit and prevent further blood-letting.

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