ProgressiveFX.co.uk

In the present economic climate confidence has taken center stage in driving market movements. The unilateral decision to cut global interest rates by 50 basis points and a move, spearheaded by Gordon Brown, that has seen governments taking an equity stake in financial institutions has done little to quell fears within the markets.  Equity markets posted some of the biggest losses in 21 years with the FTSE falling 7.2% and shedding over £125billion of its value. Similar drops on Wall Street and in Europe has created a great deal of turmoil in currency markets.

Economic fundamentals while having little impact on currency movements, have not in essence altered the economic outlook for the broader economy. UK CPI broke the BoE?s forecasted 5% peak coming out at 5.2% y/y while unemployment worsened to 5.7% from the previous months release of 5.5%. Average hourly earnings showed little sign of a reduction in wage price inflation, coming out in line with expectation. On the whole the UK economy is still suffering from high inflation and slowing growth which has in recent days sparked talk of recession.

Fears over recession and a worsening of the credit crisis has done little for the pound, particularly against the USD. Sterling touched a 2 and a half year low versus the US dollar and remained within ranges against the euro aided somewhat by the euro?s losses against the dollar.

But not all currencies have suffered in these unpredictable markets, falling equity markets and a drop in the price of oil have aided dollar gains across the board. Crude Oil reached a low of $68.74 per barrel this week, while the Dow Jones Industrial Index fell to below 9000.   Economic data for the U.S remained mixed with only the drop in CPI inflation to 4.9% y/y from 5.4%, being noteworthy

Next Week:

With the recent surprise 50 basis point interest rates cuts by the BoE, ECB and Fed, the day before the official BoE rate decision was expected, will have traders very interested to see what the minutes from the last MPC meeting will deliver. Most analysts expect the MPC to continue to voice concerns over inflation, but their main interest will be to see if there is any comment regarding the previous days rate cut, a decision which probably went unopposed by the members given the present market climate. UK Retails Sales and GDP will garner some attention as talk of recession increases in the markets.