Market Report

The British pound fell to a 14-month low against the Euro after U.K. lender Northern Rock Plc sought emergency funding from the Bank of England.

The pound headed for a weekly loss versus 15 out of 16 most active currencies on speculation the central bank will delay raising interest rates. Northern Rock said it applied for cash to ease a "severe liquidity squeeze" because of a slump in global credit markets, following a surge in U.S. mortgage defaults.

The Euro scaled lifetime peaks against the dollar and gained against other major currencies as many players in the market kept betting on a further hike in the European Central Bank's key 4.0 percent rate by December.

Another very interesting day in the markets is expected so hang on to your hats.

Have a great weekend.

VC

UK
Sterling held near the previous day's four-month low versus the Euro and edged lower against the dollar on this morning as weak housing data cemented expectations that Britain's interest rates may have peaked. British house prices fell for the first time in nearly 2 years in the three months to August and the outlook for the market is subdued because of higher borrowing costs and financial market troubles, according to the Royal Institution of Chartered Surveyors' (RICS) house price index. This data comes a day after investors interpreted comments from Bank of England Governor Mervyn King as a signal that UK interest rates may not be raised further from 5.75 percent.

King said that central banks are aware that they may be called upon to prevent shocks to the global financial system. "The market is perhaps unsettled by that data and perhaps unsettled also a little bit by the Bank of England's attitude to credit market tensions".

chances of a UK rate hike to 6 percent this year have slumped from 75 percent at the start of August to just 30 percent last week as a result of the turmoil in financial markets and the uncertainty over its duration and economic impact. In contrast, most still expect a hike from the European Central Bank, probably in December.

USA
The dollar traded near an all-time low versus the Euro on signs U.S. economic growth is slowing, suggesting an interest-rate advantage over Europe will narrow.

The currency is poised for the longest losing streak since October 2004 as investors increase bets the Federal Reserve will reduce its target rate next week. Faster wage growth signalled borrowing costs in Europe may rise, while a U.S. government report today will probably show higher unemployment claims.

The U.S. currency may extend this month's 1.8 percent decline versus the Euro as the Labour Department will probably report in Washington today initial jobless claims rose by 7,000 to 325,000 in the week ended Sept. 8.

Interest-rate futures show 74 percent odds the Fed will lower borrowing costs half a percentage point to 4.75 percent. A month ago, traders expected a quarter-point cut.

KIWI
New Zealand's central bank left its key rate at a record- high 8.25 percent today.

DH

The US Dollar yesterday continued to fall as the expectations of a FED cut are growing. With EUR/USD reaching an all time high, many experts feel that this will continue!

Today we have a quiet day in terms of data, with the highlights being the release of jobless claims in the UK at 9:30 and the industrial production figures from the Eurozone at 10:00.

There is too much sport to mention today, but England have to win against Russia att Wembley tonight.

DE

The pound may decline against the euro before a government report today that will probably show Britain's trade deficit widened in July.

The pound fell to a two-week low yesterday on speculation the euro region is coping with the financial market rout better than the U.K., where Royal Bank of Scotland Group Plc predicts interest rates have peaked. The U.K.'s trade deficit widened to 6.4 billion pounds ($13 billion) from 6.3 billion pounds in June.

The U.S. trade deficit probably widened in July as higher oil costs overshadowed gains in exports, economists said before a government report today. The deficit is unlikely to keep worsening as growing economies overseas and a cheaper dollar fuel demand for American-made machinery, aircraft and computers, economists said. At the same time, U.S. purchases of foreign goods may cool as a housing slump lingers and credit restrictions make it more difficult to borrow.

The New Zealand dollar gained against the dollar and the yen on speculation the U.S. Federal Reserve may cut interest rates next week, adding to the appeal of the South Pacific nation's higher-yielding assets.

VC

This time, when the U.S. sneezes, the rest of the world may well catch a cold.

Global economic growth looks likely to slow markedly in the months ahead as further weakness in the U.S. infects Asia and Europe. That would represent a shift from the last 18 months, when the world economy proved immune to a U.S. slowdown.

What's different now is the U.S. slump is starting to spread from the domestic housing market to consumers who buy imports, and the sudden increase in borrowing costs that followed the collapse of the subprime-mortgage market is now showing up overseas.

The Australian and New Zealand dollars fell against the yen as the first U.S. job losses in four years caused a slump in Asian stocks, spurring investors to sell higher-yielding assets bought with money borrowed in Japan.

The two favorites for so-called carry trades had the biggest drop among the 16 most-active currencies on speculation the U.S. economy will drag down world growth. Australia's dollar has lost 14 percent from a 16-year high and New Zealand's 20 percent from a 21-year peak versus the yen in the past seven weeks as the cost of credit soared because of the U.S. subprime mortgage crisis.

VC

Archived Market Reports