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The Pound made significant gains on the Euro overnight as comments from leading speculator George Soros and negative economic data placed the single currency under pressure. US GDP figures out this afternoon are likely to be a source of market volatility as they are expected to show a deep contraction in quarter 4 of 2008.

Pound Sterling – UK markets

Sterling has remained strong overnight, trading at 1.42 versus the US Dollar and up to 1.10 versus the Euro. The Pound has also strengthened against the Australian, New Zealand and other European currencies.

Euro weakness overnight allowed the Pound to edge up over 2% against the single currency. This morning the Bank of England has pledged £50 billion towards buying assets in the latest step towards monetary easing. With interest rates at 1.5% the Bank is looking to more unconventional measures of stimulating the ailing British economy. Prime Minister Brown is coming under pressure in Davos to put employment at the top of the G20 agenda after reports the global crisis could leave 51 million people unemployed. Yesterday London Underground announced they are to slash 1000 jobs and Honda is to commence the four month shut down of its Swindon headquarters today, affecting over 3000 employees. Mortgage lending statistics out today show a sharp increase for the month of December with consumer credit figures up to £2.2 billion in December after £1.6 billion the previous month. There is no further data from the UK today with the February MPC decision due next week.

US Dollar – US Markets

The Dollar has remained strong overnight, gaining over the Euro and some of the perceived ‘risky’ currencies. Trading at 0.77 versus the Euro and 0.69 versus the Pound, the Dollar is heading for its biggest monthly gains on record against the Euro as recession spreads throughout the region.

President Obama has slammed bankers taking bonuses as ‘shameful’ while their industry is being bailed out by taxpayer money. Durable goods orders fell by 2.6% in December and weekly jobless claims have continued to rise along with the monthly unemployment rate in the US. Unemployment is contributing to low consumer confidence and personal consumption, a factor expected to be reflected in the release of GDP and personal consumption figures today. It is thought that the US economy nose-dived in the final quarter of 2008 and the Dollar may weaken following the announcement this afternoon. The Fed has also noted there is ‘significant risk’ of recovery not taking place until 2010.

Euro – European Markets

The Euro is significantly weaker this morning, suffering from the comments of George Soros and negative economic data. The Euro has dipped to 0.89 against the Pound and is down to 1.28 versus the US Dollar.

The release of economic, consumer and industrial confidence figures yesterday showed deepening recession in the Eurozone. This, in combination with George Soros’s comments that the Euro is under threat from exposure to toxic debts, pressured the Euro internationally. Iceland is seeking to be fast tracked into the EU in a last ditch effort to prevent financial collapse. This week the conservative government has collapsed with the opposition party campaigning on the basis of Euro membership. Spanish Central Bank figures this week show the economy in recession for the first time since 1993 as GDP fell 1.1% in the last quarter of 2008 and unemployment rose 3%. The EMU unemployment rate has risen to 8% this morning and the consumer price index declined by 1.1%. There is no further data today with an interest rate decision due from the ECB next week.

Other Currencies – Highlights

Japan is heading for its worst post war recession as export orders and factory output slump. This is still at odds with the strength of the Yen as disparity continues to grow between the internal economic situation and the value of the currency internationally. Despite recent gains, the Nikkei Index has slumped 10% this month and wavering market confidence this morning has fuelled Yen gains overnight.

The New Zealand Dollar remains weak, near recent lows against the US after the RBNZ cut rates to historic lows and risk appetite diminished yesterday. The Australian Dollar is also weaker on speculation over the pending RBA decision next week.

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The International Monetary Fund (IMF) announced yesterday that the UK is to be hardest hit by the current recession. Global growth forecasts have been revised down to 0.5% in what is likely to be the worst recession in 60 years. A separate report from the International Labour Organisation (ILO) predicted 50 million people internationally would become unemployed as a result of the downturn.

Pound Sterling – UK markets

Sterling is trading from a firmer platform this morning as the third consecutive day of stock market gains reflect the recovery of confidence in the banking sector. The Pound is slightly weaker than yesterday at 1.41 versus the US Dollar but has strengthened notably to 1.08 versus the Euro. The Pound is also trading at 2.74 versus the Kiwi Dollar after a drastic interest rate reduction from the RBNZ.

Following the Barclay’s announcement earlier in the week, in which the bank claimed they would still make a post-write down profit for 2008, banking shares have bounced. The rally has allowed Sterling to stage a minor recovery and the Pound has also benefited from the competitive export benefits of having a weaker currency. Sharp depreciation against the Euro, US Dollar and Yen at the close of 2008 has provided a degree of support for British exporters amid the downturn. The IMF announced yesterday they expect the UK economy to contract 2.8% in 2009. Germany is expected to contract by 2.5%, Japan by 2.6% and the US by 1.6%. The IMF also cited the ‘pernicious feedback loop’ linking financial markets and the wider economy, reiterating that recovery in the financial sector is key to wider economic stability. House price figures have continued to slide in January and there is no further data in the UK today. Mortgage lending and consumer credit statistics are due tomorrow.

US Dollar – US Markets

The Dollar is gaining this morning on both the Euro and Pound and is up nearly 2% on the Kiwi Dollar. Renewed FOMC policy and the passing of an $820 billion rescue package in the House of Representatives have lent the Dollar support overnight.

The Federal Reserve left interest rates unchanged at 0.25% yesterday. This was largely expected by markets and the FOMC stated they would also look at purchasing assets in the interest of stimulating credit markets. The House of Representatives has passed President Obama’s $820 billion rescue package and the bill is now subject to approval in the Senate. The package failed to achieve Republican support in the House and there are concerns over its viability in the Senate. Equity markets in the US have continued with their underlying upward trends despite the gloomy outlook at the World Economic Forum in Davos and from the IMF yesterday. Durable goods orders and new home sales are out in the US today while personal consumption and GDP figures are expected to be the market movers tomorrow.

Euro – European Markets

The Euro has weakened against the Pound and Dollar overnight, trading at 0.92 and 1.30 respectively. The Euro is also down against its Asian and European partners as negative economic data continues to flow from the Eurozone.

The German unemployment rate has risen to 7.8%, with 56 000 jobs being lost in December as Germany’s export driven economy suffers from the downturn in global markets. However despite this, consumer confidence continues to rise in the Eurozone with Swedish figures joining France and Germany in showing an upturn in consumer sentiment. Royal Dutch Shell, Europe’s largest oil company has posted its first quarterly loss in 10 years this morning on the back of lower oil prices and reduced demand due to the deteriorating economic situation. Consumer, economic and industrial confidence figures are due from the Eurozone today.

Other Currencies – Highlights

The RBNZ slashed rates by 1.5% yesterday to a record low of 3.5% and left the door open for further reductions. The export led Kiwi economy is suffering along with a downturn in trading partners. The New Zealand Dollar fell to its lowest level against the US Dollar since 2002 after the announcement. Rate cuts are expected to continue but at a slowing pace. Economic contraction is forecast at 0.9% this year for New Zealand.

Hong Kong voted to keep its base interest rate at 0.5% yesterday, shadowing the Federal Reserve as the Hong Kong Dollar is pegged to the Dollar rate. Trading stocks jumped in response to the approval of the US rescue package. Japanese equities have strengthened as market confidence in the ability of the Bank of Japan to unlock credit markets has returned. A series of Consumer price indices are released in Japan today.

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The Pound remains under pressure this morning, trading just off recent lows against its major currency partners. Barclay’s shares have risen nearly 40% in response to claims from the Chairman and Chief Executive the bank is operating in good financial health and the Federal Reserve is due to make an interest rate decision later in the week.

Pound Sterling – UK markets

Sterling remains under pressure internationally, trading just above recent lows against the Dollar and Euro. The Pound is up against the Asian currencies, having gained 0.11% on the Yen this morning.

The announcement of fourth quarter GDP figures on Friday sent the Pound to its lowest level since 1985 versus the US Dollar. With the economy having contracted -1.5% already, Sterling remains under pressure as a second series of tax cuts and emergency capital injections are looking likely for the UK. The exception appears to be Barclay’s, which despite announcing £8 billion write downs last year, has gained 40% in share prices this morning. This comes after the chief executive and chairman penned an open letter reassuring customers of their profitability. Steelmaker Corus has announced 3500 jobs cuts, more than 2000 of which could be in the UK as the credit crunch continues to force redundancies in the manufacturing sector. Mortgage approvals in the UK have increased to 22 100 in December following 17 773 in November. There is no further data in the UK today.

US Dollar – US Markets

The Dollar has weakened against the Pound and Euro this morning to 0.73 and 0.77 respectively, whilst strengthening against the Yen and Australasian currencies.

This week Congress will debate the delivery of an $800 billion rescue package from President Obama and his team of advisors. The plan is expected to cost 5% of GDP and create 4 million jobs in the US. House prices have fallen an average of 10% across the country and new home sales figures are due this afternoon. The Federal Reserve is due to make an interest rate decision this week with the base rate currently sitting at 0.25%.

Euro – European Markets

The Euro remains under pressure, a result of deepening economic downturn and the expectations of further interest rate cuts from the ECB. This morning however, risk aversion and market focus on the UK has seen the Euro make gains on the Pound, Dollar and Asia Pacific currencies.

Friday’s PMI figures showed the Eurozone economy continued to contract in January 2009, notably in the manufacturing and services sector. Phillips, Europe’s largest electronics producer is to cut 6000 jobs after a downturn in sales figures as a result of the credit crunch. The Euro has suffered record lows against the Yen recently and Credit Suisse has predicted the Swiss franc will gain 2.6% this quarter on the Euro. Figures in Poland show retail sales rose by 5.6% in December and unemployment has risen to 9.5%. There is no major data from the Eurozone today with German IFO business climate and Eurozone current account released tomorrow.

Other Currencies – Highlights

The Bank of Japan announced a deterioration of economic conditions in its meeting last week, with expectation of worse to come. Foreign trade data declined in quarter 4 of 2008 and the Bank has forecast a -2.6% contraction for the Japanese economy in 2009. Yet despite this, the Yen has continued to strengthen, reaching record highs against the Euro last week and sitting just under all time highs against the US Dollar. The strength of the Yen is exacerbating impacts of the downturn for exporters and creating a growing disparity between the economic situation in Japan and the value of the currency internationally. Retail sales and industrial production figures for Japan are due later in the week.

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UK GDP has contracted -1.5% in the fourth quarter, taking annual growth rates to -1.8% confirming an entrenched recession. Growing speculation that the government will have to move to more unconventional policy measures is turning investors away from the Pound, while economic uncertainty internationally is supporting the US Dollar.

Pound Sterling – UK Markets

Sterling has continued to decline this morning, down to 1.35 against the US Dollar and 1.05 versus the Euro. Uncertainty over the financial crisis, spiralling government debt and negative economic data are all placing Sterling under severe pressure.

UK GDP contracted -1.5% in Q4 2008, taking year on year growth to -1.8% and confirming the deep economic downturn in the UK. CBI industrial trends show order books at their lowest level since 1991 and this is expected to be reflected in manufacturing figures for January. Retail sales increased 1.8% in December as the reduction of VAT and heavy discounting drew people into stores during the Christmas period. The drastic sell off of Sterling is coming from a lack of confidence in the financial sector and in the ability of government to provide assistance. Growing speculation that the government will need to take a more unconventional policy approach, combined with soaring debt levels and shrinking share prices are battering investor confidence. Conservative leader David Cameron has sparked outrage this morning with his comments that Britain may need to seek IMF assistance as government debt levels soar to £71 billion. Short selling is back in the spotlight and may face further bans. There is no further data in the UK today

US Dollar – US Markets

The Dollar is up 1.6% on the Pound and 1.4% on the Euro, supported by a combination of risk aversion and rallies in equity markets as President Obama and his team get to work in Washington. The Dollar has also gained on its major Asian and European currency partners.

US Treasury Secretary-nominee Timothy Geithner announced yesterday a strong Dollar was beneficial to the US economy and equity markets rallied, supporting the Dollar even further. The underlying trend in equities is still unstable as investors are unsure how to respond to plans of nationalization and the world waits for monetary easing policies to trickle through. There is no data out in the US today.

Euro – European Markets

The Euro is showing mixed results internationally, lower against the traditional safe havens yet stronger against the higher yielding currencies. The Euro is currently at 1.28 versus the Dollar and 0.94 versus the Pound.

Figures this week show recession becoming more entrenched in the Eurozone. German PMI for manufacturing and services has contracted sharply in January, Spain’s unemployment level has hit 13.9% and French business morale is at an all time low. PMI for services and manufacturing for the Eurozone show the European economies are deep into recession territory. There is no further data from the Eurozone today.

Other Currencies – Highlights

The Australian and New Zealand Dollars have gained against Sterling but are weaker against the US Dollar. Rallies in US equities have triggered a recovery in risk appetite allowing the Australasian currencies to strengthen over Sterling. The RBNZ is expected to cut interest rates by 1% next week.

Chinese GDP has shrunk to 6.8% in the final quarter of 2008, taking annual growth rates to 9% in 2008. Although significantly higher than most developed nations, this is the weakest figure in seven years. Growth is targeted at 8% in 2009 and the Chinese government has recently released a 4 trillion Yuan stimulus package.

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The Pound has continued to slump against the US Dollar reaching 1.36 yesterday, the lowest level since 1985. Sterling continues to be battered by spiralling government debt and the likelihood of more unconventional monetary easing measures from the MPC. Wall Street equities rallied reviving risk appetite internationally, however Sterling remained exempt and suffered against most of its international currency partners.

Pound Sterling – UK Markets

Sterling has continued to plunge against its major currency partners, trading at 1.38 versus the Dollar this morning and 1.06 versus the Euro. While the revival of risk appetite yesterday allowed some of the higher yielding currencies to appreciate, Sterling remained exempt from the rally, battered by a lack of confidence in both the banking sector and the government’s ability to rescue it.

With the prospect of further interest rate reductions and quantitative easing weighing on the Pound, Sterling fell to 1.36 yesterday. The MPC minutes revealed an 8-1 vote in favour of a 0.5% reduction with Blanchflower advocating a 1% cut increasing the likelihood of further reductions in February. Despite the second bail out of the banking sector, market confidence has continued to plunge as UK government debt is at 47.5% of GDP. The Pound has lost 35% from its high of 2.11 versus the Dollar. With fourth quarter GDP figures almost certain to show a contraction we could see Sterling continue to fall. There are no major announcements in the UK today with GDP and retail figures out tomorrow.

US Dollar – US Markets

Dollar volatility has been restricted to fairly tight ranges versus the Euro as risk aversion remains high on the international agenda, providing some strength for the world’s foremost reserve currencies. The Dollar has dropped back from recent highs against the Aussie and Kiwi but continues its bullish run against Sterling.

Wall Street rallied yesterday after the Federal Reserve urged aggressive action on all policy fronts to halt the downward spiral of market confidence. Markets are still awaiting the announcement of a rescue package but with an expected value of $850 billion, this amounts to 6% of GDP. Housing stats released this morning showed a 3.2% decline in December from the previous month, the lowest level on record. US jobless claims are also out today.

Euro – European Markets

The Euro has strengthened this morning to 0.93 against the weakening Pound and 1.30 versus the US Dollar.

The ECB monthly report released this morning has announced inflation figures are ‘broadly balanced’ in line with the 2% target. While instability remains a feature of markets, the ECB expects steady inflation to support purchasing power and wage growth, providing a degree of economic stability. Whether this will be the case or not remains to be seen. The Swedish jobless rate has risen to 6.4% in December from 6.2% in November and the producer price index for manufacturing and services in the Eurozone is out today.

Other Currencies – Highlights

The Australian Dollar has bounced back from recent lows against the US Dollar on the back of the equity market rally yesterday. The Kiwi gained on the Pound overnight and the fortunes of the Australasian currencies are likely to mirror global appetite for risk over the coming months. Commodity prices are firmer this morning which also tends to be positive for the South African Rand and Australian Dollar.

Japanese exports have plunged 35% year on year to December reflecting the downturn in global markets. The Bank of Japan left interest rates unchanged yesterday at 0.1%. The Bank of Japan monthly economic survey and Canadian consumer price index are out today.

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The Pound declined to a 6 year low against the Dollar yesterday as market confidence was shattered by the announcement of the largest profit loss in history from RBS. The EU has revised growth predictions downwards to -1.9% for 2009 and equity markets are awaiting a fiscal stimulus package announcement from the US.

Pound Sterling – UK Markets

The Pound is down nearly 3% against the US Dollar, trading at 1.39 this morning and has slumped against its other international partners as market confidence was battered by RBS profit losses yesterday. Sterling has also slipped back to 1.07 versus the Euro.

The Pound reached a 6 year low versus the Dollar and RBS shares closed down 67% yesterday as the largest profit losses in corporate history shattered investor confidence. The British government announced £100 billion worth of financial aid and that it would increase its stake in RBS to 70% yet this did little to calm nerves as government debt continues to spiral. This morning RBS shares have recovered 17% of yesterday’s losses but the tone of equity markets remains negative. December inflation has fallen to 3.1% from 4.1% in November on the back of lower energy prices and heavy discounting from retailers. This will have a bearing on MPC decisions in future and minutes of the last meeting are published tomorrow. The European Commission yesterday forecast the UK economy would contract 2.8% in 2009. Fourth quarter GDP figures are out on Friday.

US Dollar – US Markets

The US Dollar is substantially stronger, reaching a 6 year high against the Pound yesterday and gaining against the Euro, supported by a combination of risk aversion, weak international data and optimism surrounding the inauguration of President-Elect Obama.

Obama is expected to announce a fiscal aid package outlining the US road to economic recovery when he takes office this week. Equity markets are likely to remain nervous until the scope and scale of the package are announced. Market focus will turn to North America today with the inauguration of President Obama and the Bank of Canada interest rate decision due.

Euro – European Markets

The Euro strengthened over the Pound yesterday, jumping 2% to 0.92 as Sterling was battered by the release of the largest profit loss in history from RBS.

The ZEW Survey reported that German investor confidence has improved following ECB interest rate reductions. This also comes amidst an EU report revising European growth forecasts down to -1.9% for 2009 painting a somewhat mixed picture for the Eurozone. Yesterday Spain had its credit rating cut by the Standard & Poors, following Greece last week with Portugal and Ireland still under watch. Losses in the UK banking sector were reflected in European equities. There is no further data from the Eurozone today with the German producer price index out tomorrow.

Other Currencies – Highlights

The Australian and Kiwi Dollars slumped against the US Dollar yesterday as weak equity markets and further risk aversion supported the Dollar. The Aussie and Kiwi Dollars are both up against the broadly weaker Pound this morning as RBS profit losses and market unease is still overshadowing government initiatives to provide support to the banking sector. Global economic contraction is continuing to weigh on commodity prices and Aussie Dollar in particular.

The Canadian Dollar is stronger this morning ahead of an interest rate decision from the Bank of Canada later in the day. Japanese consumer confidence figures and New Zealand retail sales are also announced today.

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The Government has announced a second series of measures this morning aimed at insuring banks and alleviating toxic assets. Financial think-tank Ernst & Young has predicted UK unemployment is to hit 3.4 million by the end of 2010 and equity markets around the world have staged a minor rally boosted by the announcement of rescue packages in the US and UK.

Pound Sterling – UK Markets

Sterling has declined against the US Dollar and Euro this morning as RBS has reported the largest loss in UK corporate history. Trading at 1.10 versus the Euro and 1.46 versus the Dollar, the Pound is also facing a week of heavy economic data which will confirm deepening recession in the UK.

The Government has announced a second tier of economic strategy, including insurance for banks and giving the Bank of England the power to purchase assets, in the latest attempt at stimulating the UK economy. The announcements come as interest rates are approaching zero and the MPC reaches the limits of conventional methods for controlling inflation. This morning RBS has posted losses of over £28 billion and an Ernst & Young think-tank has predicted unemployment will reach 3.4 million by the end of 2010 with the economy contracting 2.7% in 2009. The Right Move house price index has shown prices continue to fall, declining 1.9% in January. This week is laden with important data for the UK. Consumer and Retail Price Indices are due tomorrow with MPC minutes, unemployment and GDP figures later in the week.

US Dollar – US Markets

The Dollar has gained on the Pound and Euro this morning, supported by the further aid for Bank of America and Citigroup and optimism surrounding the inauguration of President Obama this week.

Falling inflation rates and the announcement of rescue packages in the US saw confidence return to equity markets late last week strengthening riskier currencies against the Dollar. Obama’s credit relief package is expected to cost around $850 billion with focus in the latter half of the package on distribution of credit to consumers and businesses. Internationally, hopes are high that a reversal of US economic fortunes will stimulate trade and export markets. US Markets are closed today for Martin Luther King Day and the rest of the week is light for US data.

Euro – European Markets

The Euro has weakened against the US Dollar this morning and declined against the higher yielding currencies over the weekend as markets regain some risk appetite. Against the Pound, the Euro is back up to 0.90.

The European Commission has predicted a 1.9% economic contraction for the Eurozone in 2009 with significantly larger contractions to be felt by individual members. Friday’s figures showed the Eurozone’s trade deficit widening with imports falling a seasonally adjusted 4.7% from October to November. Today is light for Eurozone data with the ECB monthly report due on Thursday.

Other Currencies – Highlights

The Australian and Kiwi Dollars strengthened overnight against the Pound and Dollar, buoyed by the return of investor confidence following the announcement of financial aid packages in the US and UK. Japanese industrial production fell by 8.5% in November, a record decline and Asian equities remain hopeful of US recovery to stimulate demand for Asian imports. The New Zealand consumer price index is out today as is Japanese consumer confidence.

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The ECB reduced its base interest rate to 2% yesterday in a move that was widely expected by markets. A volatile day of trading saw Bank of America shares lose over 20% and the London FTSE 100 also closed with significant losses. Consumer inflation and industrial production figures from the US are likely to be the major market movers today.

Pound Sterling – UK markets

The Pound strengthened against the US Dollar overnight, trading just below 1.5 this morning and is up 1% on the Euro to 1.12 following the ECB decision.

A turbulent day of trading saw the FTSE tumble in response to uncertainty in US equity markets yesterday. Lloyds shares fell by 11% while Barclays and HSBC suffered 8% and 7% declines respectively, wiping out the hard won gains after the recent market shocks. This morning the Pound has strengthened against the Dollar and Euro as Congress rescue packages and ECB rate cuts increased risk appetite internationally. Economists are predicting a return to positive growth in the fourth quarter of 2009 at present as it takes 1-2 years for rate reductions to work their way through the economy. There is no data out in the UK today.

US Dollar – US Markets

The Dollar has suffered against its major currency partners as a barrage of negative US economic data this week has allowed Sterling and the higher yielding currencies to consolidate against the Dollar.

Bank of America has been granted a $138 billion rescue package by Congress this morning which includes $20 billion of financial aid and $118 billion worth of guarantees. Shares in the Bank and Citigroup slumped yesterday ahead of profit losses which are expected to be larger than initially thought. The Philadelphia Manufacturing Survey showed the weakest performance in 40 years and underlying market trends remain bearish. The inauguration of President Obama next week and the announcement of further Congressional rescue packages are likely to be a source of market optimism next week. Economists are predicting upturn in the US economy could begin in quarter 2 at the earliest and is likely to precede recovery in the UK and Eurozone by around 3 months. The Consumer Price Index and Industrial Production Figures are out in the US today.

Euro – European Markets

The Euro has continued to lose ground against the Pound this morning, trading at 0.88 and 1.32 versus the Dollar.

Yesterday the ECB cut the base interest rate by 0.5% to 2%. This was widely expected by markets as industrial production and inflation figures have shown the Eurozone economy in rapid decline. Inflation fell to 1.6% in December from 2.1% the previous month prompting predictions that a short period of deflation may occur. Greece, Ireland, Spain and Portugal are the latest members of the Eurozone to be put on credit alert by the Standard and Poor’s which added to pressure on the Euro. Trichet ruled out the further interest rate reductions until March in his accompanying speech. The EMU trade balance is out today.

Other Currencies – Highlights

The New Zealand and Australian Dollars continue to remain vulnerable to international movements in the absence of important economic data. New Zealand house prices fell 2.7% in December, which weighed on the New Zealand Dollar yesterday and the Aussie lost 0.9% against the US Dollar overnight. The Central Bank of Turkey is due to make an interest rate decision today although consumer inflation figures in the US are likely to be the major market movers.

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The ECB is under pressure to reduce the cost of borrowing today following a sharp reduction in industrial production in the Eurozone. The Euro is weaker this morning ahead of the decision and the Dollar has been supported overnight by underlying bearish market trends.

Pound Sterling – UK Markets

The Pound is 1% higher against the single currency amid expectations of an interest rate cut from the ECB. Sterling has gained slightly to 1.46 versus the US Dollar.

More profit losses from the High Street this morning as Argos and Curry’s announced a 10% decline in sales figures in the three months to January. UK markets barely registered the Government’s £20 billion finance package for small businesses yesterday although the Pound has continued to strengthen over the Euro ahead of the ECB meeting today. The prevailing market view at present is that the ECB lags behind the Bank of England in terms of monetary easing policy. Although Sterling is likely to continue to trade at low levels internationally as it falls into the trough of the downturn, decisive action from the MPC means we could see recovery in the UK begin earlier than in the Eurozone. There is no data due in the UK today.

US Dollar – US Markets

The Dollar is retaining its current strength, supported by the announcement of President Obama’s $775 billion rescue package and the international flight to quality while market confidence is low.

Retail sales fell 2.7% in December despite the busy Christmas period. This is a decline for the sixth consecutive month and comes amid news that recession is expected to drag on throughout 2009. Negative sales data led to a negative trend in equity markets yesterday. Although economic downturn in the US remains severe, the US is also expected to be the first economy to enter recovery and international risk aversion is supporting the Dollar at present. Oil has risen to $45 a barrel as OPEC has announced further production cuts in the face of reduced demand. Producer Price Indices and the Philly Fed Manufacturing Survey are due out in the US today.

Euro – European Markets

The Euro is back to 0.90 versus the Pound ahead of an interest rate decision from the ECB.

Eurozone industrial production fell by 7.7% in the year to November. This contraction was larger than expected, coming after the 5.7% revision for the year to October and reinforced the view that recession will be severe in the Eurozone. The Standard and Poor’s cut Greece’s credit rating yesterday and official figures show inflation for the 16 member region has fallen to a 26 month low, largely on the back of cheaper energy prices. These figures are adding to the case for an ECB interest rate cut and a 0.5% reduction is expected, taking the base rate to 2%. This will match the lowest rate since the ECB was founded and could be set to fall as low as 1% later in 2009. The decision will be announced at 12:45 GMT and will be followed by a speech from President Trichet.

Other Currencies – Highlights

The Australian and Kiwi Dollars continued to weaken yesterday against the Pound and US Dollar as risk aversion prevailed internationally. The Australian unemployment rate rose 0.1% to 4.5%.

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The US trade balance released yesterday showed a sharper than expected reduction, by 28.7% due to reduced consumer demand and the lower price of oil. This supported the US Dollar internationally at the expense of the Pound and Euro.

Pound Sterling – UK Markets

The Pound is gaining ground against the US Dollar this morning, having slipped back to 1.45 after balance of trade statistics were released yesterday.

The UK deficit in goods and services has widened to £4.5 billion in November, up from £3.9 billion the previous month. This is in reflection of reduced exports, primarily to the US and Eurozone and was mirrored by US figures yesterday which showed a drastic decline in imported goods and reduced trade deficit. Job losses in the UK also show no sign of abating with Merrill Lynch and Barclays both announcing significant job cuts yesterday. The Government has announced a £20 billion plan to provide finance for small businesses but this has done little to support the Pound, as investors continue to favour safe havens. MPC minutes released next week are likely to provide some insight into the prospect of further interest rate cuts in February. There is no significant data for the UK for the rest of the week.

US Dollar – US Markets

The US Dollar was buoyed overnight by a larger than expected contraction in the US trade deficit. The Dollar is trading at 0.68 versus the Pound and 0.75 versus the Euro this morning.

The total trade deficit was reduced by over 28% to -$40.4 billion as reduced consumer demand and lower oil prices affected import figures. This is the biggest contraction in 12 years and served to strengthen the US Dollar yesterday. Oil has risen for the second day as OPEC signalled deeper production cuts due to reduced demand. Today market focus will be on crucial US retail sales figures and the Fed’s Beige Book.

Euro – European Markets

The Euro strengthened against its major Asian currency partners overnight but is still trading at low levels amid the market view that the ECB is not doing enough to combat the economic downturn.

German GDP figures show the economy grew 1.3% in 2007 following a 2.5% expansion in 2007. This is the weakest GDP figure in 3 years and as Germany is the largest economy in the Eurozone, is likely to be mirrored by fellow members. The German economy is expected to continue to contract in Q1&2 of 2009. European equities are in negative mode due to uncertainty over the extent of the credit crunch and looming rate cuts on Thursday. The ECB has cut rates by 1.75% since October with a further 0.5% cut expected next week. Industrial Production figures are due from the Eurozone today.

Other Currencies – Highlights

The Aussie Dollar reached a one month low against the US yesterday as US balance of trade deficits showed a larger than expected contraction. The Kiwi Dollar has suffered amid news that Standard and Poor’s is considering revising the foreign currency rating of the Kiwi Dollar. At present the Kiwi is highly dependent on external funding to service its account deficit and a withdrawal of international funds could have serious implications for the New Zealand economy. Business sentiment in New Zealand has also reached a 33 year low. US Data out today could entrench risk aversion at the expense of the Kiwi and Aussie Dollars and Australian employment figures are due tomorrow.

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