The Obama bail out plan and the nearing of an ‘equitable arrangement’ for the big 3 automakers softened the risk atmosphere yesterday and allowed sterling to make some inroads against the dollar throughout the course of the trading day. Whether this is merely a relief rally or the start of something bigger remains to be seen but we have seen a good couple of these in previous weeks; the Monday of the Chinese bail out and the announcement of Tim Geithner as Obama’s Fed Chair both gave GBP 2 cent gains before slumping back by 3 in the next sessions.

GBP/EUR fell to yet another record low yesterday as Trichet spoke about the ECB’s response to the credit crisis. The ECB was the last major economy to cut rates dramatically, last Thursday’s 75bps cut being the largest ever, and therefore expects to recover at a slower rate than the UK (hence our predictions of a weaker euro in 2009). In the meantime we expect the market to push the cross lower, regardless of data, towards our 1.11 target.

Data today includes Industrial Production from the UK, ZEW economic sentiment from the EU and US pending home sales.

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:

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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.