International currency and equity markets are expected to open nervously today in advance of the British chancellor's statement on his government's attitude to European Monetary Union, and against a background of last week's topsy-turvy trading.
Despite a rally in Hong Kong on Friday when shares and the dollar (HK) rebounded, western markets remained on edge with shares in London and New York shrugging off early recoveries to close down on the day. With Dublin closed today for the holiday, trading in London is expected to remain volatile. Investors will have one eye on Mr Brown's statement and the other on the performance of Hong Kong and other Asian markets.
Some economists feel that Mr Brown will not surprise the market. Sterling has moved ahead last week on reports that the British government has ruled out joining EMU is advance of the next general election.
The reports assuaged market concern that the value of sterling would have to come down and interest rates would have to be reduced to prepare for early EMU entry. Sterling is now 10 pfennigs stronger against the deutschmark at Dm2.91 than it was a month ago when it fell on mounting speculation that it would enter EMU sooner rather than later. Bank of Ireland chief economist Mr Jim Power said he expected Mr Brown to rule out early EMU entry for Britain. That will keep sterling stronger than it would ortherwise be - it would fall if entry was planned in the short term because Britain would have to enter at a significantly lower rate than DM 2.91. A strong sterling will ensure that the pound remains strong against other European currencies, he said. In addition it will keep revaluation speculation alive in the Irish market and prevent the pound rising against sterling. Mr Power expects the pound to continue to trade in a range of 89p to 91p sterling in the short term.
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