Sterling strengthens on stock market slide
22 January 2008
Britain’s FTSE 100 share index fell 4.2% in early trading this morning following yesterday’s 5.5% fall; as fears over a US recession become more apparent. Monday’s trading session encountered the largest one day index fall since the September 11th terror attacks, wiping £77bn off stock market valuations. Asian markets continued to fall heavily in overnight trading and the market anticipates this afternoons opening of US stock markets to slide aggressively after yesterday’s Martin Luther King public holiday.
Initially Sterling weakened against the Japanese Yen and the US Dollar as investors unwound risky bets. We saw aggressive depreciation in the higher yielding currencies as investors pulled out of the carry trade, reverting back into lower yielding currencies. However, growing speculation that Central Banks would proactively cut interest rates to restore market confidence resulted in a trend reversal. Sterling has since recovered 2 cents against the US Dollar from a 1.9338 low and stock markets rallied into the black.
These are some of the most volatile markets we have seen for a long time and would exercise extreme caution in the current climate.