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The rally in risk continued apace with market participants still caught up in the belief that Angela Merkel and Nicolas Sarkozy’s secret plan to fix the Eurozone will do just that. For an economy that had been hurt by playing the expectations game badly the European Union is unwilling to change tactics and has got back in the ring, leading with its jaw however. And Europe has a weak jaw as we all know.

Even so, the euro added over 2% against the dollar yesterday with similar gains seen against the pound with further good sentiment coming from the news that Standard and Poor’s had reaffirmed France’s credit rating at AAA and with a stable outlook; i.e. they do not envisage moving that lower anytime soon. There was also news from the IMF/ECB/EU troika in Greece saying that they would complete the Greek aid talks soon. All this added together and nobody was selling the single currency with any great conviction.

Risk sold off in other markets as well with the yields on bunds and gilts rising as investors sold out of their haven positions in order to get long of the rally in risk.

Earnings season kicks off today in the United States with results from Alcoa after the US markets close. Industry heavyweights such as Pepsi, JPMorgan, Google, and Safeway report this week with earning expected to have slumped in the 3rd quarter down to levels not seen since end of 2009. Numbers from the financial sector are also expected to be poor with some banks forecast to be making a loss.

We also get news from Slovakia; not mentioned frequently in these columns I’ll give you but hear me out. Slovakia is the only EU country that has not ratified the enhancement to the EFSF and looks to be the one that will be closest to not passing it with one party in the ruling coalition still withholding support for the vote. If there’s any experts in Slovakian parliamentary procedures reading this, they could be very useful. There is obvious headline risk surrounding this announcement

In structured data we have a lot of news from the UK with Industrial and Manufacturing numbers for the month of August being published. Although the correlation is weak between these numbers and the manufacturing PMI we are expecting these numbers to be poor. If you remember we saw a sharp fall in manufacturing PMI in August before bouncing back in September. Sterling’s short term gains versus the dollar could be stopped and its weakness against the euro exacerbated.

The pound has caught a bid overnight on the latest BRC retail sales number that showed a 0.9% fall. We also get the NIESR’s estimate of September GDP at 15.00, which is expected to be weaker than the 0.7% the Bank of England set out in their August inflation report on the basis of the recent market turmoil.

What the future holds for sterling – Free Seminar

If you import or export, you’ll know that a blip in exchange rates can have a massive impact on your bottom-line. Keeping an eye on what’s going on in the markets can be time-consuming, so currency experts World First have put it all in one place. We’ve brought together some folk you might like to hear from. On Thursday 20th October, World First’s Chief Economist will be joined by our Non-Executive Director Sir David Clementi (Ex-Chairman of the Prudential and former Deputy Governor of the Bank of England) for an informed discussion about foreign exchange and the global economy.

Indicative Rates Sell Buy
GBPEUR 1.1443 1.1473
GBPUSD 1.5639 1.5664
EURUSD 1.3646 1.3670
GBPJPY 119.90 120.18
GBPAUD 1.5694 1.5720
GBPNZD 1.9975 2.0008
GBPCAD 1.6105 1.6134
NZDUSD 0.7822 0.7842
GBPZAR 12.29 12.34
USDZAR 7.8546 7.8855
GBPPLN 4.9347 4.9722
EURJPY 104.68 104.95

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