Sterling lost ground following our beloved governments decision to nationalise Northern Rock. Not a great outcome but it will hopefully draw a line under a very damaging event to the UK’s reputation. Sterling has lost significantly against most if not all currencies since the problems at Northern Rock were made public. The Bank of England still has other problems not least of which is the conflict between rising costs and a faltering UK economy. The minutes of the BOE’s last meeting highlighted this conflict and as a result, the market has tempered its expectations as to the speed and extent of UK interest rate reductions. I still believe sterling is oversold [i.e. sterling should strengthen over the medium term but the reality could be a lot different]. Also beware of another major shock like Northern Rock as we would see sterling slide rapidly.

The US$ has gained and then lost ground against sterling over the last week and now sits at US$1.962 inter bank. Difficult to think of anything new to say about the US. Huge problems with a faltering economy and a financial sector full of uncertainty. Not dissimilar to the UK. I suspect the news flow will get [a lot] worse before it gets better. Further interest rate cuts are a distinct possibility.