Market Update – GBP USD
Markets were sent reeling last week after the Dubai government announced that its investment vehicle Dubai World is requesting a standstill agreement with its creditors. The diversified holding company has debts of $59bn, but the immediate concern is a $3.5bn bond due to mature in December. By seeking to vary the terms of repayments Dubai is probably defaulting on its debts, a situation that has uncertain ramifications for investment worldwide. The initial reaction in the markets was panic, sending the FTSE 100 index down over 3%. Needless to say, most of the major British banks are lenders to Dubai World. US markets were closed yesterday for Thanksgiving, but were trading 2% lower this afternoon.
The impact on the currency markets has also been fairly predictable. Just like last year’s turmoil, this shock has sent traders scurrying for the apparent safe haven of the US dollar and the Yen. Sterling slipped 4 cents since yesterday but we have seen some rebound this afternoon as stock markets stabilised. Oil and gold also fell, partly as a reaction to the stronger dollar, but also because traders are taking their profits off the table in a general move towards de-risking portfolios.
The technical outlook for sterling is still relatively sturdy on a six month view as long as we don’t start breaking levels like 1.6250 and the key support at 1.5707. We mentioned the former level in our last update, and it’s perhaps encouraging that this afternoon’s strong bounce came just 20 ticks ahead of that support. The short term outlook will be dominated by risk sentiment, with further stock market wobbles likely to result in further USD strength; whereas a return to “normality” after the weekend would see sterling recover.
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analysts. Any analysis and/or forecasts provided are aimed at
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