Dollar strengthened by over 3% against sterling yesterday as safe haven currencies benefited from a massive sell off in equity markets as the speculators and investors found the Obama stimulus plan a tough pill to swallow. A lack of clarity from newly installed Treasury Secretary Tim Geithner left the market feeling unfulfilled; hopefully further clarification from Obama or Geithner in the coming days will serve as the cherry on this $3trn banana split of a stimulus package,

Japan is of course pejoratively known as ‘The Land of the Rising Sun’ however it could now be known as ‘The Land of the Falling Ruble’. It was a Japanese paper that was the first to publish details of the Russian debt problems causing officials to scrabble for a microphone to issue denials. The euro struggled to regain any semblance of balance over the course of the trading session although has benefited from sterling’s losses on risk aversion grounds. Euro is the most affected of the major currencies as it is Russia’s largest trading partner plus a large amount of the debt that Russia is said to want to reschedule is held with either the ECB or European banks.

For every silver lining there is a cloud and the big dark one on the horizon for sterling is this morning’s UK inflation report. If we are right in our belief that we have seen the end of the Bank of England’s cutting cycle then the only tool left at their disposal is that of increasing the money supply. If any further indication is given towards ‘quantative easing’ in the report tomorrow then the likelihood is that volatility will increase and sterling may struggle to hold onto its days in the sun.

We also have employment figures for the UK which are expected to show that the claimant count in the UK has risen over the 2m mark for the first time since 1997.

Further analysis of sterling and its prospects are available on our video blog http://uk.youtube.com/user/WorldFirstJC

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.

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