The U.S. Dollar extended its 2008 highs against major currencies due to falling oil prices, and the expectations that global inflation would fall. The Euro dropped to a 7-month low against the U.S. Dollar, dropping below $1.45. Analysts have predicted a bleak economic outlook for the U.K. economy and as a result, the U.S. Dollar pushed the Pound Sterling to fall below $1.80, the lowest price since April 2006. The GBP also fell to a new record low versus the Euro and experienced a 12-year low versus a basket of major currencies.
Hurricane Gustav has been downgraded, and as a result, oil prices dropped by almost 30%, compared to July’s record of $150 a barrel to $105.46 a barrel. Analysts believe that the drop in oil prices will ease global inflation in the coming months which will give central banks the opportunity to pursue growth supporting interest rate cuts.
At 11:14 GMT on September 2, 2008, the Euro dropped by 0.8% to $1.448. The Pound Sterling also dropped to $1.7784, a 2-year low, before retreating to $1.7805.
While press releases from the Federal Reserve Bank, as well as the European Central Banks, appear to calm the markets, most analysts believe that the liquidity crisis is not over, and that it will take the whole of 2009 before authorities have a better understanding of its impact; and that, in the interim, even more financial institutions will become victim to the liquidity crunch.