Sterling took another dive this morning on the acknowledgment from BoE Governor King that two British banks got within hours of a liquidity shortfall on October 6 2008.  Lloyds bank and RBS stocks are both trading lower this morning though the general tone of stocks has been dragged down as the market comes to terms with more remainders that the global economic recovery could be protracted. In tune with the pullback in stocks the JPY is trading higher across the board supported by talk of repatriation ahead of the end of the fiscal half year.  In contrast, the AUD and the NZD have continued to climb vs the USD, finding support on reports from the RBA about the health of its banks and on surprisingly good Australian new home sales data (+11.4% m/m).  As stocks pare their losses EUR/USD is presently pushing higher, the USD failing to sustain its better overnight tone.   

The news that two British banks came within hours of collapse just one year ago is a stark remainder of the depth of the crisis suffered last year.  It puts into context the constant warnings of Governor King about the difficulties still facing the UK economy and puts the risks of a 'W'shaped upturn back into focus.  Simultaneously, the fact that last night's FOMC statement contained no signal that the Fed is preparing to enact its exit policies also sends the signal that the US economy is not out of the woods.  In Germany, the release this morning of the September IFO showed further improvement to 87.0 in September from a revised 86.2 in August.  However, the outcome was lower than expected which again raises the question over whether the market is being over-optimistic with respect to the improvement in demand.  Yesterday's drop in oil prices is in tune with the same theme.  Oil inventories remain unseasonably high suggesting an imbalance between supply and demand.  The softness of the Baltic Dry index is another reminder of the lacklustre nature of global economic activity.

Cable continues to push lower presently trading at the day's low of 1.6178.  EUR/GBP is trading at the day's high of 0.9130.  Also of interest in the UK today is the unusual gathering of leading economists called by the BoE.  Officially this meeting marks the 6 mth point after the start of QE.  It could impact the Bank's thinking about the impact of QE on the economy and inflation and also impact the timing of exit policies. 

Main focus today will be the G-20 summit in Pittsburgh.  Some agreement in executive pay, a general dressing down of protectionist measures and a sense that it is too early to withdraw stimulus measures are likely to emerge from the meeting.  It is unlikely that any strong mention of FX markets will be made, though some reference to the preference for stable exchange rates may be seen.