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Daily FX Commentary

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Daily FX Commentary

Wed, Oct 8 2008, 10:44 GMT

Investica Ltd


Bank rescue underpins Sterling

Sterling weakened sharply in Europe on Tuesday as there were renewed fears over the UK banking sector with particular fears surrounding the Royal Bank of Scotland. The UK currency dipped to lows near 1.73 against the dollar before a rebound.

The market turmoil will increase fears that the already very weak UK economy will deteriorate further. There will be very strong pressure on the Bank of England to act this week with markets increasingly speculating over at least a 0.50% rate cut on Thursday.

The government confirmed that it would announce a package of support for the banking sector including capital injections through government stakes in the main banks while there would be additional funding to boost inter-bank lending.

Measures to boost capital will underpin confidence to some extent, although sentiment towards the financial sector, economy and currency will remain very fragile on deep recession fears. Sterling dipped to near 1.74 against the dollar and 0.7830 against the Euro on a wider increase in risk aversion as market fears increased.


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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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