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Daily FX Commentary

Mon, Sep 15 2008, 10:46 GMT

Investica Ltd


Lehman sparks fresh turmoil

There was further speculation during Friday that investment bank Lehman would secure a sale over the weekend and this improved risk appetite which eased Euro selling on the crosses, although conditions were very choppy. The dollar continued to weaken in New York with lows beyond the 1.42, the sharpest one-day fall since March.

US financial developments dominated markets for much of Friday and even more so on Monday as Lehman Brothers announced that it would file for bankruptcy as takeover talks failed. Merrill Lynch agreed a deal to be taken over by the Bank of America while insurance group AIG announced that it would look to raise fresh capital.

Global banks announced a US$50bn liquidity pool to help an orderly unwinding of positions while the Federal Reserve relaxed collateral conditions to support liquidity.

The dollar initially weakened sharply against European currencies, but then regained ground. There were renewed fears over an unwinding of carry trades given the US financial stresses and this pushed the yen sharply stronger with a move to highs beyond 105.60, the sharpest one-day decline for 6 years.

Expectations that central banks will have to boost liquidity and keep interest rates low may curb pressure for yen gains, but it strengthened back to beyond 150.0 against the Euro and also tested support below 105.0 against the dollar in European trading.


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Investica Ltd http://www.investica.co.uk | tim.clayton@investica.co.uk

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Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.

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