Currency market updates - from Foreign Currency Direct (www.currencies.co.uk)

Tuesday September 11th 2007

By Simon Eastman - Trading Supervisor

9/11 – 6 Years On

It’s hard to believe the tragic events of 9/11 happened 6 years ago to the day. Although the global markets have far from recovered from the unthinkable that happened we can but wait and see as to whether this anniversary brings any market jitters.

At Foreign Currency Direct our thoughts are of course with the families of all who lost colleagues, friends or loved ones at the World Trade Centre Twin Towers back in 2001.

Market Commentary

The weeks trading started with a day of very little in data releases. Sterling held flat versus the weaker dollar but fell against the Euro.

Friday's data showing U.S. employers cut 4,000 jobs last month -- the first decline in four years - cemented the case for the Federal Reserve to cut interest rates next week to cushion the economy against a crisis in the housing market.

The US stock markets fell sharply on Friday and couple that with a weak start on European equities on Monday that highlighted investors were reluctant to take risks. With Sterling being the highest yielding of the G7 countries with regard to interest rate return we are seeing the pound take a hit as investors shy away from the popular but risky carry trade.

"The outlook for sterling is very akin to that for the other high-yielding currencies and such, it is likely to suffer in this environment of financial and economic concerns," said Michael Hart, currency strategist at Citigroup.

Producer Prices Index for manufactured products edged up 0.1% on the month and 2.5% from the last 12 months to August, the monthly figure decreased from the 0.3% rise posted in July, while, on the year, the PPI output has risen at the same pace as last month, 2.5%. These figures are in line with the analysts’ estimations.

Prices paid by the producers on raw materials have decreased 0.5% on the month and risen 0.7% from the same month last year; following a 0.8% monthly drop, and a 0.3% yearly decline in July.

Softer figures released yesterday and severe tensions across UK money markets persisted as banks remain reluctant to lend to each other preferring to hoard cash to fund their complex investment vehicles, giving the view that the UK interest rates may have peaked. What this means for our readers is that we could well have seen the end of sterling’s strength against the major traded currencies. We have become accustom to these kind of levels for some time but could the bubble be about to burst.

The pound remained supported against the dollar yesterday which slid to a 15-year low as signs of slowing U.S. economic growth stoked expectations of a Federal Reserve rate cut next week.