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

Monday September 24th 2007

By David Jones - Executive Dealer

Sterling Weakness

Last week we saw the pound continue to lose ground against most major currencies as the Northern Rock situation continued and with the governor of the bank of England Mr Mervin King, coming under criticism for the way he and the Bank of England have handled the banks crisis, Critics say Mr King didn't act quickly enough to help the lender. Last week Mr King told the Treasury Select Committee that it would have been "irresponsible" for the Bank to have intervened earlier to save Northern Rock.

Yet he admitted he might have got the balance wrong when the run against Northern Rock started, from initially doing nothing to aid Northern Rock, the Bank of England then announced that it was giving the lender an emergency loan. Critics said the move amounted to a complete u-turn, amid speculation that the government had pressured the Bank to intervene. Mr King argued that he didn't take action earlier as "there was no point in blowing up the train before it hit the buffers".

A Sunday newspaper report said Northern Rock was struggling to attract a buyer, at least 12 of the UK and Europe's biggest banks have now decided not to buy the Newcastle-based lender, according to the Sunday Times.

The paper says banks have estimated that it would require too much capital - as much as £20bn - to successfully refinance Northern Rock, those banks said to have turned their backs on a potential bid for Northern Rock are HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB.

Across the Pond

The dollar fell to a record low against the euro and touched the weakest since 1976 versus the Canadian dollar on speculation the Federal Reserve will keep cutting U.S. interest rates. The dollar posted the biggest weekly losses versus the euro since March as the Fed's half a percent interest rate cut on 18th September dimmed the allure of U.S. assets. The dollar may extend it’s lose this week with reports forecast to show declines in home sales, durable goods and consumer confidence. ``The Fed has untied the dollar and let it slip,'' said Dennis Gartman, an economist and editor of the Suffolk.

The U.S. currency fell 1.6 percent this week to $1.4091 per euro and touched $1.4120 on Friday, the lowest since the euro's inception in January 1999. The dollar has lost 6.3 percent this year against the euro.

The Euro Zone

The euro has taken full advantage of the problems here and in the US gaining strength against both the pound and breaking through the $1.41for the first time in its existence.