Daily currency report
The markets will be looking ahead to tomorrow's Bank of England and European Central Bank interest rate decision. Although expectations are that the banks will not increase interest rates, the Bank of England has been known in the past to surprise economists by raising rates unexpectedly.
Debate as to whether the Bank of England will raise interest rates is dominating the financial markets in the UK. Expectations are that interest rates will be left on hold after being raised in July for the fifth time since August 2006. Growth in the UK has been confirmed at a robust 0.8 per cent between April and June, suggesting the economy could stomach another rate increase.
Sterling weakened against the dollar as the release of the Institute for Supply Management's factory activity index revealed good US manufacturing growth and suggested that recent financial turmoil may not be having as negative an impact on the US economy as some had feared.
This week, investors have been scaling back expectations that the ECB is set to raise interest rates as unusually strong demand for short- to medium-term funding from banks, nervous about a global crunch, has sent cash rates over the past month to levels not seen in six years.
Japan's Ministry of Finance will set up a new office within its foreign exchange market division to focus on managing the nation's huge store of foreign exchange reserves, although the clear message is that this does not mean that Japan will begin to invest funds in more risky assets such as stocks and property.
Commercial Foreign Exchange Travelex Malta, freephone: 800 733 22, www.travelex.com/mt/