Sterling recovers on back of AAA credit rating despite downgrades elsewhere

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The health of European banks is re-merging concern with Dexia in the process of being broken up and partially nationalised (Northern Rock style) while credit rating's agency Moody's has downgraded the credit ratings of one Spanish and 11 British banks and building societies. At the weekend German Chancellor Merkel and French President Sarkozy announced yet another agreement to sort out the Eurozone financial crisis, this one centring on a recapitalisation of banks at risk to a Greek default (I was pretty sure there wasn't going to be a default by Greece???? ). As usual, details of the agreement are hazy and more will be revealed in the next month or so. Why we can't find out the details sooner heaven only knows. Perhaps it is because policy makers don't know how it will work.

As usual, investors have clutched at this latest straw of hope, taking the Euro higher in early trade this morning. It is a welcome rebound for the Euro after the knocks it took on Friday from a series of downgrades to Italian and Spanish debt and warnings that Portuguese and Belgian ratings could be heading lower too.

The headline data on Friday also assisted the Euro (or more precisely, the US Dollar had gone down) after better-than-expected American employment figures. Non-farm payrolls rose by 103,000 in September and their upward adjustments to the previous two months' data added. The numbers were considerably better than the 60,000 or so that investors had been anticipating. Paradoxically, the good news for the US economy was not good news for the Dollar. It increased investors' appetite for risk, boosting the Aussie and Kiwi Dollars and made them less inclined to crave the safety of the US Dollar and the Yen.

Sterling has remained surprisingly resilient following the Bank of England's announcement on Thursday that it would be indulging in another spot of quantitative easing. At the time, Sterling lost a cent or two across the board but has made more than a full recovery since. The recovery is probably due to the perception that Britain is keeping its AAA credit rating while all around are losing theirs.

It is a very quiet start to the week with public holidays in Japan, Canada and the US. The first piece of UK data is the RICS house price balance comes out at midnight. There is no other UK data, which will probably be a relief to Sterling.