Daily currency report

The sterling remains under pressure and has fallen against a host of currencies over the past week after the Bank of England signalled that interest rates have now probably peaked in the UK and the next move could well be a rate cut.

GBP
The sterling hit a 17-month low against the euro for the third consecutive day. The BOE committee was unanimous in its vote to keep rates on hold, which was unsurprising given recent market turmoil. In a separate move, the BoE has moved to try to improve money market liquidity and bring down the high level of three-month money market rates. The bank is to hold an auction next week (of £10 billion) with a three-month maturity against a wider range of collateral, including mortgages.

USD
US home construction starts fell by 2.6 per cent in August to their lowest level in more than 12 years while building permit activity, a sign of future construction plans, also dropped to a low not seen since mid-1995. The weak housing data has reinforced the belief that the sector will continue to weigh heavily on economic growth.

EUR
The euro remains at record highs against the dollar and it is still widely expected that the dollar will weaken further in the medium to long term as interest rate differentials continue to turn against it.

JPY
The Bank of Japan kept interest rates unchanged and is now likely to keep rates on hold until the early part of next year. There has been a partial unwinding of carry trades, as some investors have sold assets to cover losses in credit markets. This has pushed the yen higher against the dollar and frustrated the broader market upheaval.

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