Daily currency report

The sterling was sold off heavily as the continuing saga over Northern Rock forced many traders to ditch the pound in favour of the dollar, yen and Swiss franc. Elsewhere, the dollar had a reprieve as most investors are bracing themselves for the Fed to cut interest rates at its monthly meeting.

GBP
The sterling fell to its lowest level in a year on a trade weighted basis as the continuing problems surrounding Northern Rock heightened risk aversion and led investors to unwind risky carry trades. The saga forced the British government to pledge to guarantee all deposits held by Northern Rock in an effort to boost confidence in the countries fifth-biggest mortgage lender.

USD
The Fed is expected to cut interest rates at its meeting for the first time since mid-2003 to try protect the economy from a housing slump caused by problems in the credit markets. The only question to be answered is not if they will cut rates, but by just how much, with the market split 50-50 on both a cut of 0.25 per cent and 0.50 per cent.

EUR
Wolfgang Franz, a member of the German government's panel of economic advisors, stated his concern that the current euro strength may hurt Germany's economic growth as it makes goods more expensive in non Euro markets.

JPY
Japanese manufacturers' sentiment reached a two-year low in September, suggesting that the current credit crisis gripping the financial markets, has also taken its toll on the Japanese manufacturing sector. The data underscored expectations that the BoJ will be in no hurry to raise interest rates any time soon.

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