The British pound rose today against the U.S. dollar as the traders started to bet on the interest rate cut in the United States based on the recent catastrophic developments in the countrys financial sector.
Although many currencies opened this week with a huge positive gap against the dollar, pound remains one of the few that still hover above the open rate and show promise for a good standing against the greenback for the rest of the week. The chance that the Federal Reserve will lower its 2 percent federal fund rate at a tomorrows meeting rose from zero to 12 percent according to the futures market.
The bankruptcy of the Lehman Brothers investment bank can be considered as a general failure of the U.S. financial system in its struggle with the mortgage and liquidity crisis. If FOMC lowers the rate tomorrow to support the banks, dollar may face a huge wave of sell-offs, as it was considered to be a currency with a positive rate expectation.
British pound was oversold against the dollar during the last several weeks and now the technical correction combined with the dollars problems pushed GBP/USD up. Of course, if the big U.K. banks start filing for the bankruptcy, pound will lose its advantage.
GBP/USD rose from 1.7991 to 1.8013 as of 8:14 GMT today after reaching 1.8130 during the early Tokyo Forex session. GBP/JPY is falling from 190.61 to 188.91 as the carry trade positions are closed worldwide. Euros weakness pushed EUR/GBP pair from 0.7945 down to 0.7924 today.
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