Daily currency report

In a move that surprised everyone, the Fed cut its discount rate of interest by 50bp and issued a statement in which it identified financial instability as its main concern rather than the risk of inflation. The announcement provided immediate relief to both the sterling and the euro as traders ended their sell-off, confident that the Central Banks will help the market through the current credit crisis.

GBP
The pound finally stabilised against the other major currencies as the US Fed cut its discount interest rate by 50bp. The announcement helped to sooth anxious investors and helped bring to an end the recent sell-off of the sterling.

USD
In a bid to hold back a rising financial storm, while holding its benchmark federal funds rate at 5.25 per cent, the US Fed slashed its discount rate by 0.5 per cent to 5.75 per cent while signalling a willingness to cushion the economy from tightening credit. Traders now believe there could even be a further interest rate cut next month.

EUR
The euro also benefited from the Fed's reduction in the discount rate, ending the day up against the dollar and yen. However, the Fed's intervention to free up credit has, in turn, raised the question of whether the ECB will follow through with a forecast tightening of monetary policy in September. Economic data is slowing alongside inflation.

JPY
The yen hit a 14-month high versus the dollar before falling back in the wake of the Fed's emergency rate cut. Nevertheless, the yen remains the currency most likely to benefit from the growing uncertainty generated by the US credit crisis.

Commercial Foreign Exchange Travelex Malta, freephone: 800 77 33 22 www.travelex.com/mt/