Daily currency report

The main grip on the markets this week will be the continuing problems facing Northern Rock, as it braces itself for the reaction of its savings customers and shareholders to a tumultuous weekend, which could decide the future of Britain's fifth largest mortgage lender.

GBP
The sterling hit a 14-month low against the euro and fell versus the dollar, after the news that Northern Rock had asked the BoE for emergency funding as it became a casualty of the US credit squeeze. The sterling was also sold off after concerns about the health of the UK housing market were further exacerbated by data from property website Rightmove, showing that house prices fell 2.6 per cent in August.

USD
The dollar remained weak against the euro as investors counted on an imminent cut in US interest rates by 0.25 per cent to help cushion the economy from the impact of the housing slump, with more to come in the months ahead. However, the Fed must not ease rates aggressively due the increasing threat of future inflation.

EUR
With the euro close to record highs against the dollar, the euro strength is a double edge sword for the ECB as prices for raw materials denominated in dollars become cheaper in euro terms, but euro-denominated goods are mores expensive to overseas consumers at the same time.

JPY
The Japanese markets have been keeping a close eye on who will replace Shinzo Abe as PM. If Fukuda was to succeed in his bid to become PM, as recent surveys showed, he has stressed the need to carry on economic reforms while playing more attention to weak regional areas.

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