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Rumours Beijing has turned its back on French Banks

Pound The currency and global stock markets are bracing themselves for another day of turmoil today after credit rating agency Standard and Poor's downgraded Italy late last night. The news came after panic gripped global markets as a fresh showdown over Greece renewed fears that the eurozone will be plunged further into crises. This helped the pound make back losses against the single currency, with sterling hitting its highest level this week at 1.1521. Further turmoil for the eurozone will surly lead to more euro weakness so in GBP/EUR at least, short term outlook looks sterling positive. Now for the other main currency pair in cable. Risk aversion still holds a firm grip on global markets so GBP/USD has been taking a hit, with technical levels being breached as the pound sustained losses below its 200-day moving average at $1.5489, which may point to further losses in cables value. No major data today. Nationwide Consumer Confidence expected overnight.


Euro: Yet another scary day in the life of the euro as news hit the wires that S + P lowered Italy’s credit rating. The euro extended losses against the dollar and to a lesser extent sterling, after Standard and Poor’s cut the Italian credit rating from A+ to A, with the agency saying the country’s net general government debt is the high-est among A-rated sovereigns, and now expects it to peak later and at a higher level than it previously antici-pated. The single currency dropped to a 7 month low versus the dollar and towards its lowest level since 2001 versus the yen in the wake of the ongoing Greek debt story, as discussions in Greece with its creditors over the next instalment of rescue funds continue to weigh on the euros value. The Greek PM will hold another call with European Union and IMF officials tonight in a bid to secure a sixth instalment of rescue funds. According to a Greek newspaper, the Greek PM is considering holding a referendum on whether his nation should remain in the common currency, saying a bill to set up a referendum on the euro may be submitted to parliament and dis¬cussed ion the coming days. Looking ahead, its hard to see the euro not taking further hits as the markets are concerned what is going to happen with Italian borrowing costs which could see further selling of bonds. Italy follows Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries having their credit ratings cut this year. Data 10.00: German ZEW –44.3 from –37.6 & E/Zone ZEW –42.3 from –40.0.


Dollar: As the Federal Reserve begins a two –day meeting starting today, the backdrop is drearily familiar: Job growth in the US faltering, the outlook increasingly hazy, the world economy at risk. Once again the eyes of the world will be on Chairman Ben Bernanke and his colleagues to see if they can come up with any more steps to boost growth and avert a slide back into recession. Given the weakness of the incoming economic data, the Fed is now almost certain to do something, but exactly what is still not entirely clear. One possibility could be another round of QE. Remember though this time the meeting comes in the form of an EXTENDED TWO DAY FORMAT, compared to Augusts single day, which will allow Bernanke more time to try to guide the committee to¬ward consensus. Risk aversion is key for the greenback currently, so it was no surprise to see the dollar advance versus 14 of its 16 major counterparts before the Fed began today's meeting. Everyone is talking about all the risks, so this time around when we see a central bank actually taking more aggressive action than the average market expectation, you may get a bit more of a boost to the dollar in the wake of this!
Data 13.30: Building Permits 0.60M unchanged.


• Rumours are hitting the wires that China is no longer willing to expose itself to European peripheral economies and has forced a large market making state bank in China to pull trading lines with French banks.


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GBP/USD                        1.5711

GBP/EUR                        1.1502

EUR/USD                        1.3674

GBP/JPY                         120.18

GBP/AUD                        1.5328

GBP/NZD                         1.9114

GBP/ZAR                         12.013

GBP/CHF                         1.3845

GBP/CAD                        1.5547

GBP/SGD                        1.9836

GBP/THB                         47.85

GBP/HKD                        12.243

red-down; blue-up (snap shot)

These rates are for indication purposes only.

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