Daily currency report

The sterling eased against a broadly resurgent yen as a run of soft US housing data and falling equity markets kept investors cautious about risky carry trade investments, particularly in the high-yielding pound.

GBP
The only piece of economic data released was July BBA mortgage approvals which fell from 75k to 67k. Continued concerns about the subprime sector and losses in the US stocks will continue to dictate any further movements in the sterling.

USD
Concerns about the US economy prompted investor caution, cutting into what had been a recovery in stocks and boosting the yen. Wall Street looked set for a weak start after soft US housing data hit shares of US banks, brokers and mortgage lenders. Falling house prices are fuelling concern the US economy may head towards recession as homeowners with little equity in their properties are unable to refinance adjustable rate loans at better terms before monthly payments rise.

EUR
Financial markets and media have correctly interpreted the monetary policy message delivered by the ECB President. Markets and media scaled back expectations the central bank will increase interest rates in September after Jean-Claude Trichet stressed his last comments on monetary policy, when he used the "strong vigilance" phrase signalling a rate hike was likely, came before the recent market volatility. Bini Smaghi said financial markets were showing signs of settling down after the credit squeeze that has plagued them through much of August, but there was a still long way to go.

JPY
Carry trades should continue to remain weak until risk appetite returns to the market. Meanwhile, Japanese traders are also happy that their unpopular government is trying to change for the better. Prime Minister Abe appointed a number of veterans to his new Cabinet who will hopefully push through change for the better.

Commercial Foreign Exchange Travelex Malta, freephone: 800 733 22, www.travelex.com/mt/