Additional injections of liquidity into financial markets required to boost flagging economies, known as “QE2”, continues to drive currency markets. QE2 expectations for both the US and UK economies saw the US dollar and sterling tumble to new record lows. Sterling has breached new six-and-the-half-month lows against the euro, hurt by weak UK mortgage approvals data. The US dollar again reached new 15-year lows against the Japanese yen as investors gear up for a strong possibility of QE2 following next week’s US Federal Reserve monetary policy meeting. The yen’s ascent will keep markets on their toes for more currency intervention from the Bank of Japan after a top Japanese official warned that intervention is most effective when its comes as a surprise.

Sterling

British Bankers Association mortgage approvals data for September revealed that individuals are seeking less funding and tightening their belts in fear of upcoming UK public spending cuts. Sterling is under broad selling pressure and fell to 20-month lows against the Japanese yen, and new six-and-the-half-month lows against the euro.

US dollar

The US dollar crashed to new 15-year lows against the Japanese yen as investors continue to diversify out of the weak US currency. A strong possibility of the Fed pumping even more liquidity into the US financial system in order to boost economic activity remains the key driver of US dollar weakness.

Euro

Strong industrial data and hawkish comments continue to add to the euro’s allure, keeping the single currency in sight of recent record highs against several rival currencies including sterling, the Swiss franc and the US dollar. Eurozone industrial new orders rose 5.3 per cent on the month to August and jumped by a record 24.4 per cent on the year. The news will provide optimism over the Eurozone manufacturing sector’s ability to withstand a global slowdown.

Japanese yen

Japanese retail sales for September, scheduled for release tonight, are expected to show a slowdown in consumer spending and will add further pressure on the Bank of Japan to further stimulate a slowing economy. An increasingly likely factor will be more yen selling through direct currency intervention in order to weaken the yen and boost export activity.

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

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