Foreign Exchange - UK Daily Update - Thursday, October 2, 2008 6:49 - 0 Comments

Dollar Strengthens As Fears Continue – World First’s Morning FX Update – 2nd October 2008

Hopes that the US government will finally ratify the TARP bail-out plan spurred dollar lower yesterday, pushing the greenback close to 7 year highs against the euro and to 2 week peaks against sterling. The Senate passed the bill 74-25 adding further pressure and focus on the squabbling House of Representatives to settle their differences and fall in line. The leadership of both parties are happy that amendments tagged to the bill would sway enough dissenters; a vote is tentatively scheduled for Friday.

UK data was disappointing yesterday as PMI for the manufacturing sector showed activity has fallen to its lowest level since records began with many commentators hypothesising that this is but another indication that the UK economy is in a recession. Pressure will now be on the Bank of England to cut rates at next week’s meeting.

Sterling has been able to gain against the single currency overnight as confusion abounds over the Irish decision to guarantee deposits in Irish banks and a proposed €300bn European bail-out package. News reports already suggest that funds are flowing into Irish accounts from the UK and elsewhere which is all well and good for AIB and Bank of Ireland but leaves customers’ former banks a little in the lurch. This has caused consternation in Downing St and at the European Council and further squabbling may see the euro continue to slide.

Late yesterday we heard muted reports of a fund “to support the financial sector” from Christine Lagarde, France’s finance minister. Germany however immediately came out against the measure and with little support from the UK a volte face is expected. We would think that problems in the Eurozone will be dealt with on an ad-hoc basis.

Today’s data schedule will be dominated by the ECB’s rate decision at 12.45. With estimates that Germany and Spain will fall, if they have not already, into recession Trichet’s comments will be seized upon for evidence of a slackening stature. We forecast a hold at 4.25% today. Sterling may be dealt another blow by a PMI figure today; this time the construction sector’s. Needless to say the housing market is in a dire state and any indicator to which it is tied is bound to disappoint.

Indicative Rates
	Sell	Buy
GBPEUR	1.2657	1.2686
GBPUSD	1.7672	1.7700
EURUSD	1.3943	1.3971
GBPJPY	186.71	187.53
GBPAUD	2.2386	2.2438
GBPNZD	2.6316	2.6378
GBPCAD	1.8784	1.8862
NZDUSD	0.6699	0.6734
GBPZAR	14.63	14.69
USDZAR	8.25	8.31
GBPPLN	4.3136	4.3424
Rates are dependent on amount transacted Please call 0207 801 9080 for a live rate quote

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.