The Usd extended yesterday’s rally into the current trading session, with unprecedented gains across the G10. The EurUsd fell over 200 pips to the high range of 1.28, while the UsdJpy slipped below the 100 level to 98 as risk aversion overtook the marketplace. The GbpUsd was the key story in the FX trading, as the pair declined nearly 850 pips over the last 2 days, putting the sterling at levels seen in September of 2003. The equity markets sank with the Dow down over 500pts at the close, which was consistent with performance overseas in the European indexes. Bond yields tightened substantially, with the 2yr in by 12bps and the 10yr in by 14bps, a pattern very apparent when Traders look for secure assets in volatile markets. The commodities sector experienced losses with oil down 7% to $67bbl, while gold slipped 5.7% to $729oz.

Monetary policy expectations and the recognition for a recession in Europe sparked a major sell off in the Euro as well as the Sterling. BoE Governor Mervyn King stated that “the UK was probably in a recession.” Further Interest rate cuts are expected which would put immense pressure on the currency. Our target for the cable has shifted to 1.55 against the dollar by year‐end, our projection shifted further to the downside from previous expectations based on the fundamental economic conditions in the region. Further repatriation to US assets will strengthen the Usd, a recovery in the credit markets will be essential to stabilization in the financial system.

ACM Forex

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