8 July 2005, 16:07  Pound drops further on jitters after bomb attacks

The pound continued to fall as the market remained nervous after yesterday's bomb explosions in London, which appear to have been a coordinated terrorist attack to coincide with the G8 meeting in Gleneagles. There have been a number of brief alerts and temporary closures at some of London's mainline rail stations this morning. "Whilst sterling has already fallen sharply there is still some danger of a further move lower whilst we remain in a period of uncertainty following the terrorist attack," said Naeem Wahid, currency strategist at HBOS. UK police have announced that the death toll from the four explosions has risen to above 50 and is likely to rise further. The pound fell to new 19-month lows against the dollar, dropping below 1.75 usd for the first time since Dec 2003. The currency is also continuing recent sharp falls on the back of strengthening expectations that the Bank of England will cut interest rates in August. While yesterday's terrorist attacks are not expected to have any significant lasting impact, they are likely to have at least a short-term effect on consumer confidence and tourism receipts, further boosting the case for a rate cut, analysts said. Elsewhere, however, the market began to reverse the risk-averse positions it had adopted yesterday, with the dollar recouping much of yesterday's losses against the Swiss Franc and the euro, both of which are seen as safe haven currencies. "After yesterday's predictable but orderly financial market reaction to the tragic events in London, markets today have begun to unwind their flight to quality trades," said UBS currency analyst Mansoor Mohi-uddin. This afternoon, investors will turn their attention to the release of key US employment data which are expected to provide further support to the dollar. The data are expected to show that the US economy continued to create a significant number of jobs in June, with nonfarm payrolls forecast to increase by just under 200,000.

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