Daily currency report

Both the European Central Bank and the Bank of England held interest rates steady at four per cent and five per cent respectively; announcements that were broadly in line with market expectations. Some commentators had called for a reduction in borrowing costs from both central banks, especially given recent weakness in economic data. However, it appears that for the time being at least, rising prices are the main cause of concern.

Sterling (GBP)

The Bank of England's monetary policy committee left interest rates on hold which although was widely expected, provoked some unrest as many felt a cut was essential to bring relief to a struggling property market. The decision came in the wake of a plethora of adverse data which had fuelled concerns over the state of the economy.

US Dollar (USD)

The US Treasury Secretary Henry Paulson has stated that the worst of the credit crunch has passed and that the financial market turmoil faced by Wall Street banks had also eased. This enabled the dollar to strengthen to a two-month high against the euro.

Euro (EUR)

The euro held firm against the dollar after rebounding from a two-month low on reduced expectations for European Central Bank rate cuts. The Central Bank president Jean-Claude Trichet stated that inflation remained his top concern and raised doubts that the Euro will cut interest rates in the coming months.

Japanese Yen (JPY)

The yen edged higher against the dollar as investors reduced exposure to risk and cut carry trades. Market players claimed that deepening concern over slowing global growth, which has been sparked by the catalyst of the US economic downturn, has assisted the low-yielding Yen which is typically used to finance risky investments such as carry trades.