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The failure of General Motors to secure a buyer last night for its European operations has led to mounting concern over job security for auto workers in both Germany and the UK. After reaching a seven-month high against the US dollar yesterday, sterling has trimmed these gains but remains trading at firm levels against both the dollar and single currency.

Pound Sterling – UK markets

The sterling-euro exchange rate weakened slightly this morning although the pound is still trading at the top of recent ranges at 1.14 against the euro. The sterling-dollar exchange rate is currently in the region of 1.59 and the pound has gained over 1% to trade at 154 against the yen.

Concern is mounting this morning for British car maker Vauxhall after the breakdown of European GM talks last night. While the German government is set to play a large role in the negotiations, the UK government is facing criticism for its failure to protect British jobs and workers. In another corporate merger, Spanish banking giant Santander is set to take control of high street banks Bradford & Bingley, Abbey and Alliance & Leicester. The CBI distributive trends survey is published today and this is expected to provide further evidence that economic decline is easing in the UK.

US Dollar – US Markets

The US dollar has recovered against the pound and euro overnight with exchange rates climbing to 0.62 and 0.72 respectively. The dollar has also gained over 1.5% on the Japanese yen and has dipped against the Australian, New Zealand and Canadian dollars.

The dollar strengthened yesterday on the back of safe haven buying as investors worried that rising yields on US debt could hinder US economic recovery. The trillion dollar budget deficit could affect levels of quantitative easing in the US and this is putting the dollar under pressure. Figures released yesterday brought further evidence the property market is stabilizing with a rise in pre-owned home prices. Orders for durable goods and new home sales are released today and both are expected to have moderated in recent months.

Euro – European Markets

Euro exchange rates have had a bullish run on the US dollar and pound this morning, rising 0.2% and 0.45% respectively. After reaching a high of 1.40 on May 22, the euro exchange rate has dropped back to 1.38 against the dollar this morning and has risen 1.75% against the yen to 134.

All night negotiations in Berlin failed to secure a future for the European division of General Motors last night, with Italian car maker Fiat and Canadian auto manufacturer Magna the two buyers left in the running. The German government is playing a central role in negotiations and is expected to provide billions of euros worth of finance for the takeover. Unemployment in Germany has risen to 8.2% in May, up 0.1% from last month. The German government expects the economy to shrink 6% this year. Euro area economic confidence figures are released today and the eurozone unemployment rate is due tomorrow.

Other Currencies – Highlights

The New Zealand dollar has strengthened this morning following the announcement of the annual budget. Finance minister Bill English deferred tax cuts as a means of servicing New Zealand’s growing budget deficit and this prompted a positive reaction from the Standard & Poor’s which raised New Zealand’s credit rating. The NZD rose to USD0.61 and has climbed 23% against the dollar in the last three months. Sovereign debt is expected to peak at 43% of GDP in 2017.

The Japanese yen has fallen the most in eight weeks against the US dollar and has also slid against the euro amid signs the recession is easing. Domestically the Japanese economy remains weak as rising unemployment and low domestic demand force down retail sales figures. Retail sales slid by 2.9% in April, falling for the eighth consecutive month. There is a host of economic data out in Japan today including the jobless rate, household spending and industrial production figures for April.

Currency exchange rates have opened on a weak note this morning as North Korean missile tests and concern over government debt levels led to a more neutral trend in equities. With US and UK markets closed for a bank holiday yesterday the euro strengthened over the pound and dollar, although this morning these losses have been recovered.

Pound Sterling – UK markets

A bank holiday in the UK yesterday saw sterling currency rates weaken against the euro. This morning the pound has recovered these gains, currently trading at 1.13 on the euro and 1.58 against the US dollar.

Last week’s figures showed the UK economy contracted an unrevised 1.9% in the first quarter of 2009. This is largely due to a 5.9% drop in exports leading to significant contraction in the industrial production sector. Also last week the Standard and Poor’s downgraded the UK sovereign credit rating based on the level of government debt as a proportion of GDP. These factors are responsible for the weak trend in Sterling at present as investors worry over government debt levels worldwide. This morning Virgin Atlantic announced it has doubled annual profits, despite rising oil prices and the recession. This is in contrast to British Airways who announced a GBP401 million pre-tax loss for the last year. There are no major announcements in the UK today.

US Dollar – US Markets

With US markets also closed for a public holiday yesterday the dollar lost ground against the euro overnight. This morning this has been recovered as US currency rates have climbed to 0.63 against the pound and 0.71 against the euro.

At present the underlying trend in US markets is negative as investors worry over government debt levels. While recent weeks have brought investors optimism based on recovery prospects, leading to gains in equities and currency exchange rates, the current focus on government debt levels is creating a sense of underlying nervousness in the market. With the Standard and Poor’s last week downgrading the UK credit rating, other countries have now come under the international spotlight. The US budged deficit is also sizeable and this is affecting dollar sentiment. Consumer confidence figures are out in the US today.

Euro – European Markets

With US and UK markets closed for a bank holiday yesterday the euro advanced on both currencies. This morning, these gains have been trimmed as the pound and dollar recover against the single currency. At present, euro currency rates are weaker against the Australian and New Zealand dollar and little changed against the yen and US dollar.

European equities opened on a weak note this morning amid concerns over the North Korean missile tests and debt amongst European banking institutions. Export levels in Germany plunged 9.7% in the first quarter and the economy as a whole contracted 3.8%. Figures released this morning show new industrial orders for the European Monetary Union have fallen by -26.9%. Although significant, this is an improvement on the last quarter and shows the pace of decline is easing. The German consumer price index is out tomorrow.

Other Currencies – Highlights

South Africa’s economy contracted by -6.4% in the first quarter, sending the entire economy into recession as mining and construction were scaled back due to the global recession. This follows a -1.8% contraction in the fourth quarter of 2008, reflecting a sharp downturn in economic activity. This news snapped a decade of growth for South Africa and weeks of gains for the rand, which weakened on the back of the negative figures.

The New Zealand dollar is likely to experience some volatility this week with the release of the annual budget. This could impact on credit ratings also which seem to be in the international spotlight at present.

The US dollar has weakened against its international currency partners after minutes from the FOMC meeting showed the committee considered expanding the QE program in the US. Although equity markets are neutral this morning, international currency exchange rates have continued to rise, prompting speculation that we could be beginning to see an end to trading that exclusively shadows risk.

Pound Sterling – UK markets

The pound has gained on the US dollar and is currently trading at 1.58, significantly stronger than the 1.55 level earlier in the week. Sterling is also trading at some of the best currency exchange rates in 2009 against the euro and yen on the back of improved investor confidence.

UK retail sales climbed by 0.9% in April putting the UK on track for a 2.6% annual rise in consumer spending. This figure however, is somewhat unreliable as the fact that Easter occurred in April this year creates some seasonal distortion. The Bank of England minutes released yesterday were in line with market expectations yesterday and unanimous MPC decision led the pound to strengthen against the dollar and single currency. The pound has risen over 5% against the US dollar this month, on track for its largest monthly gain in over a decade. First quarter GDP figures are due in the UK tomorrow.

US Dollar – US Markets

The dollar is broadly weaker this morning against its international currency partners, trading at 0.72 against the euro and 0.63 against the pound. The dollar has also lost ground against its Asian currency partners.
Minutes from the FOMC meeting referred to a potential increase in quantitative easing and this has weighed on the dollar yesterday. Uncertainty surrounding QE may affect the dollars status as a reserve and equities are in negative mode this morning. However, the weaker dollar has had little affect on international currency exchange rates suggesting that the view the economy is bottoming out could be gaining some traction. Markets will be interested in the Philadelphia Fed manufacturing survey due today as this is a good indicator of export levels.

Euro – European Markets

The euro has climbed above 1.38 on the US dollar this morning, significantly higher than last week’s best currency exchange rate. The euro is also stronger against most of its international currency partners after comments from the Portuguese finance minister that the strong euro was not a concern of the ECB.

Economic decline in the eurozone has slowed even further in May with both the manufacturing and service sector reporting a more moderate decline. PMIs are regarded as a reliable gauge of private sector activity and the positive figures have led the euro to strengthen this morning. With little data out in the eurozone for the rest of the day the euro-pound exchange rate is likely to be affected by market reaction to UK retail sales and employment data out in the US.

Other Currencies – Highlights

The pound gained over two cents on the New Zealand dollar yesterday. The two currencies are locked in a volatile trading relationship at present as the extent of recession and start of recovery remain unclear. The New Zealand dollar has climbed against its international currency partners this week, shadowing gains made by the Aussie and reports of economic improvement in Asia.

Canada’s annual inflation rate has fallen to 0.4%, the lowest since 1994 on the back of plummeting energy prices. Energy prices have fallen 25% in the last year and consumer prices fell 0.1 on the month. This gives the Bank of Canada more scope to keep interest rates low and the Canadian dollar has gained over 1% on the US dollar overnight.

Japan’s economy has contracted by 4% in the first quarter of 2009, taking the annual rate of contraction to 15.2% as the strong yen and slump in global trade battered the Japanese export sector. The pound is trading at its highest level in 2009 against the US dollar and has strengthened against the euro and yen amidst the view that the UK is well placed for economic recovery.

Pound Sterling – UK Markets

This morning the pound is trading at its highest level in 2009 against the US dollar, having risen above 1.55. Sterling exchange rates have also improved against the euro and yen and the pound is currently trading at 1.13 and 148 respectively.

Optimism surrounding recovery in the banking sector and the global economy has fuelled the boost in sterling this week. ONS figures released yesterday showed inflation is falling at the fastest rate on record, with prices declining by 0.4% in April. This takes the annual rate of inflation to -1.2% as interest rate reductions from the Bank of England and lower energy prices have reduced the cost of living. Minutes from the last Bank of England meeting showed all nine members of the MPC voted to leave base rates on hold at 0.5%. The MPC also voted to expand the quantitative easing programme by GBP50 billion rather than a full GBP75 billion. Inflation data had little impact on sterling yesterday and we could see more movement with the release of UK retail sales figures tomorrow.

US Dollar – US Markets

Results are mixed for the US dollar this morning against its international currency partners. The dollar has declined against the pound and euro on the back of improved market confidence, but gained ground on the yen which is under pressure after the release of negative GDP figures yesterday.

US banking giant, Bank of America raised USD13.5 billion in a share sale yesterday, made necessary after stress tests on US banks revealed the bank was in dire need of a cash injection. Last week Bank of America also sold an estimated 13.6 billion shares in China Construction Corp. after encouragement from Treasury secretary Geithner that banks should seek to raise funds independently. Global equities are in consolidation mode this morning although the underlying trend remains positive. Brent crude has settled in the region of USD58-60 a barrel. Minutes from the FOMC meeting are expected to be the major market influence in the US today with the results of the Philadelphia Fed survey due tomorrow.

Euro – European Markets

The euro has strengthened to trade above 1.36 against the US dollar on the back of improved appetite for risk internationally. The euro has weakened against the pound, Canadian and Australian dollars as positive market sentiment is fuelling gains in some of the higher yielding currencies.

Germany’s producer price index released this morning shows a -1.4% decline in prices in April, taking the annual rate of decline to -2.7%. The ZEW index released in Germany yesterday soared from 18.1 points in April to 31.1 in May, showing that investors expect economic conditions in Germany to improve drastically in the coming months. This has boosted euro sentiment as Germany represents the biggest economy in the region. The euro is currently trading in the region of 0.88 against the pound although economists are predicting the euro could drop to a three-month low if support drops below the “resistance level” of 0.87. Switzerland’s ZEW survey is due today with the EMU purchasing manager index for manufacturing and services due tomorrow.

Other Currencies – Highlights

The Japanese yen has weakened overnight after Japan announced a record GDP contraction in the first quarter of 2009. The economy shrunk by 4% from January to March, taking the annual rate of contraction to 15.2%. Japan’s strong industrial base and large export sector have been particularly hard hit by the global recession which has reduced consumer demand for the automobiles and electronic goods Japan is famous for. The yen has also strengthened significantly over the last year making Japanese exports more expensive. However, recent figures have shown the decline in exports slowing down and the Japanese economy may be approaching a bottom. Economists are predicting the yen may weaken as improved confidence leads investors to distribute their funds more widely.

Canadian stock markets and the Canadian dollar have climbed throughout the week, benefitting from global recovery prospects and improved economic sentiment. While recession in Canada has been deep, economists are predicting it may also be short as recent data has shown an improvement in credit conditions, home sales, employment and commodity prices. Canada’s banks have also avoided government bail outs and there is a view among economists that the economy may return to growth next quarter. With the consumer price index and leading indicators due today, we could see a further strengthening of the Canadian dollar.

The pound has hit a five-month high against the US dollar this morning on the back of the view that recession is bottoming out in the UK. Anticipation of economic recovery has driven demand for the higher yielding currencies and both the pound and euro climbed against the dollar overnight.

Pound Sterling – UK Markets

The pound is trading above 1.54 against the dollar this morning, its highest level in 2009 against the greenback. The pound has also climbed above 1.13 on the euro and is up nearly 1% on the yen as improved risk appetite has stimulated demand for the UK currency.

Sterling exchange rates have improved on the back of global recovery prospects, more positive economic data over the last few months has seen investors begin to diversify their foreign currency reserves leading to improved exchange rates for the pound and euro in particular. Throughout the second half of the year as evidence of recovery begins to emerge, we could see more scope for sterling strength against the yen and US dollar. This morning the UK consumer price index has risen by 0.2% for April, climbing 2.3% on the year while the retail price index has also climbed in April, by 0.1%. Profits at retail giant have declined by GBP400 million and the company has slashed its shareholder dividend by one third. UK retail sales figures are due later in the week with the Bank of England minutes out tomorrow.

US Dollar – US Markets

The dollar has weakened against the pound and euro overnight and is trading at lower levels against a basket of international currency partners this morning as improved economic data supports the view that the global economy is stabilizing.

A speech from Treasury secretary Geithner in which he commented that the US economy had stabilised prompted a rally in equity markets yesterday. This boosted currency exchange rates for the higher yielding currencies at the expense of the safe haven dollar and yen. This morning, news that Goldman Sachs, Morgan Stanley and JP Morgan Chase & Co. are planning a USD45 billion refund to the government has added to the view that the banking sector is beginning to recover. US housing starts are due out today and are expected to show an improvement in April as the slump in house prices is beginning to generate buyer interest. Minutes from the FOMC meeting are released tomorrow.

Euro – European Markets

The euro has climbed back to 1.36 against the US dollar and gained against the Japanese yen this morning as improved confidence aids the distribution of funds outside the safe havens. The euro is trading lower against the pound, Australian, New Zealand and Canadian dollars as well as the South African rand.

Yesterday the eurozone posted an unexpected trade surplus in March with seasonally adjusted figures showing exports strengthened by 1.6% in February. Imports increased by 0.4%. While this data shows a significant contraction for trade on the year, it also shows trade is beginning to recover after the eurozone slipped into recession in mid-2008. The euro has also rebounded ahead of the German ZEW economic survey out this morning which is expected to show an improvement in business confidence in Germany.

Other Currencies – Highlights

The New Zealand dollar remains weak this morning as official statistics show the service sector PMI fell from 47.1 to 43.7. Asian equities advanced overnight as a strong Wall Street session yesterday translated into gains for many of the Asian currencies. The euro, pound and US dollar have all gained ground against the yen and the Nikkei index climbed by over 2% yesterday. The Indian rupee has gained another 50 paise against the US dollar to trade at 47.6 this morning as the election of Manmohan Singh’s Congress Party has increased optimism over future economic reforms.

Glenn Stevens, governor of the Reserve Bank of Australia, has claimed the Australian economy will be supported by interest rate cuts and commodity demand from China. The Australian dollar climbed to its highest level in a week against the US dollar, boosting the New Zealand dollar along with it. The Reserve Bank of Australia has predicted the Australian economy is well placed to weather the recession due to its strong commodity orientation and effective economic policy. Consumer confidence and wage price figures are due in Australia tomorrow.

The risk rally lost momentum overnight as US retail sales figures declined by 0.4% in April. US retail sales figures are a crucial to wider economic sentiment as they are directly related to business confidence and import levels. Weakened growth predictions from the Bank of England and negative industrial production figures from the eurozone also dragged exchange rates downwards for the “riskier” currencies.

Pound Sterling – UK Markets

The sterling-dollar exchange rate slid to 1.51 this morning as a downturn in risk appetite put the pound under pressure. Sterling is retaining support above 1.11 on the euro and is trading at JPY144 and AUD2 this morning.

The Bank of England’s quarterly inflation report released yesterday revised growth and inflation projections significantly downward, putting pressure on sterling exchange rates. The Bank predicted a -4.5% trough in growth this quarter and projected inflation would be running at 1.7% in 2 years time. Governor King also suggested economic recovery could be a gradual process with growth returning to the UK economy in the first quarter of 2011. This morning British Telecom has announced it will cut 10% of its work force, or 15,000 jobs after losing GBP1.28 billion in the last three months. There is no major data due in the UK for the rest of the week.

US Dollar – US Markets

The US dollar recovered yesterday as the rally in equity markets stalled due to weak economic data. The dollar is currently valued at EUR0.73 and GPB0.66 and has also gained against the yen, Indian rupee and Australian dollar overnight.

US retail sales fell 0.4% in April, a larger than expected drop with petrol and electronic goods particularly hard hit. Following rising retail sales in February and March, the decline was unexpected and takes the annual rate of contraction to -10.1%. Unemployment levels, which have reached a 26-year high, are partly to blame for the decline in consumer spending. This news, combined with downbeat growth forecasts for the UK led to a mild setback in global equities and oil prices as investors became wary of taking on too much risk. Initial jobless claims and the producer price index are due out in the US today.

Euro – European Markets
The euro rate is relatively unchanged against the dollar this morning, trading at the 1.36 level. The euro has also posted gains against the pound, yen and Australian dollar this morning, though weakened slightly against the Canadian and New Zealand dollars.

The euro rate slid against the US dollar yesterday as negative growth forecasts in the UK and a sharp contraction in US retail sales minimized the appetite for risk. Eurozone industrial production was also much weaker than expected in March, falling to -20.2% year on year. Today the ECB monthly report is due with German GDP figures released on Friday.

Other Currencies – Highlights

Diminishing appetite for risk is weighing on the Kiwi dollar at present, as the stall in global equities reduces demand for higher yielding currencies. Lacking the recent commodity based boost the Australian dollar received and with a worse economic outlook, the Kiwi dollar has come under pressure and is currently trading at around USD0.61. New Zealand retail sales figures for March are announced today.

Economists are predicting Japan’s economy shrunk at a record pace last quarter, by an annual 16.1%. This is amidst an unprecedented drop in export levels as the strong yen has affected export levels. Japanese manufacturer Sony has reported their first annual profit loss in 14 years, joining other manufacturing giants such as Toyota and Hitachi in large scale profit write downs. In China, industrial production has also slowed for the second consecutive month, taking the annual rate down to 7.3%. Japan’s domestic corporate goods price index is due out today.

Equity markets have been on hold overnight as investors suddenly feared they may be taking on too much risk. There remain a number of unknowns in the global economy and further evidence of positive data may be needed to trigger another rally. Currency exchange rates are little changed although the ‘higher risk’ Australian and New Zealand currencies have trimmed gains against the US dollar and euro.

Pound Sterling – UK Markets

Sterling currency exchange rates are little changed overnight. The pound is currently trading at 1.51 against the US dollar and 1.11 against the euro. The pound is also up slightly against its other European, Asian and North American currency partners on the back of improved retail sales figures for April.

British retail sales rose at their fastest level in 3 years in April, jumping 6.3% from the same time last year. This news boosted sterling this morning and added to hopes that the recovery process may be underway. New enquiries in the housing market and house prices have also shown a tentative improvement. An OECD think tank has noted the pace of decline may be easing in France, the UK and China despite the fact that the global economy as a whole remains in deep recession. Industrial production figures for March released this morning show a -0.6% contraction, with manufacturing production declining by -0.1%. Both results are better than expected. The Bank of England’s Quarterly Inflation report is due tomorrow and this is likely to affect the underlying trend in sterling.

US Dollar – US Markets

The dollar is down 0.43% against the euro this morning and has sunk 0.47% against the pound to trade at 0.73 and 0.65 respectively. The dollar has also declined against the Australian, New Zealand, Japanese and Canadian currencies.

Following an eight-week rally, equity markets in the US have returned to a more neutral mode as there remain a number of unknowns in the financial system. Bank of America is reportedly under pressure from US regulators to raise funds and is said to have sold off a 5.8% stake in China Construction Bank for approximately USD7.3 billion. Ben Bernanke in a speech yesterday encouraged firms to raise capital independently. Bernanke also noted that the strong US dollar would help curb inflation in the US and the Federal Reserve will gradually withdraw financial support in a “timely” way. The US trade balance is likely to be the major market mover today.

Euro – European Markets
The euro has climbed to 1.36 on the US dollar, significantly higher than last week’s exchange rate as improved risk appetite has supported the single currency. The euro has also climbed 0.4% on the Japanese yen and Canadian dollar while declining against the pound, Australian dollar and New Zealand dollar.

Germany’s consumer price index came in at a flat 0% in April, rising 0.7% on the year. The fact that Easter fell in April this year is partially responsible for the upturn in economic figures which has occurred across Europe and the UK. The euro is currently trading near a seven-week high on the dollar as economists speculate the ECB could keep interest rates on hold next month. Comparatively high interest rates and reserve status are positive for the euro. Reports of recovery from the OECD are also helping the euro maintain support above 1.3 against the US dollar. EMU industrial production figures are due tomorrow.

Other Currencies – Highlights

The Australian dollar weakened against the pound and US dollar overnight as markets stalled after the rapid gains made in the last few days. The Australian dollar surged to a 12-year high against the pound in the last week on the back of improved commodity prices and appetite for risk. This morning the Aussie dollar has dropped back to 1.98 against the pound.

Industrial production in India has fallen by the most in 16 years as the global recession has forced slumps in growth and production. The Indian government has slashed interest rates and increased government spending in an attempt to stimulate the economy although the Indian rupee remains weak against its international currency partners.

The US unemployment rate has hit a 26-year high as the labour market shed 539,000 non-farm jobs in April. However despite the record figure, the upward trend in currency exchange rates and equity markets has continued with the pound and euro trading at firm levels against the dollar this morning.

Pound Sterling – UK Markets

The pound is trading at firmer levels against the US dollar this morning, having risen above 1.51 on the back of better than expected employment data in the US. Against the euro, sterling has weakened to 1.11 as global appetite for higher yields improves. The pound has also sunk to 1.98 on the Aussie dollar and 2.49 on the kiwi.

Sterling is trading near four-month highs against the US dollar as upward momentum continues with the view that the pace of recession is easing. The service sector PMI last week showed a marked improvement in economic sentiment and fuelled sterling strength against the dollar. Despite the improved market sentiment, the outlook for the labour market remains grim with economists predicting unemployment in Britain will rise for the next three years, potentially peaking at four million in 2012. BRC retail sales figures are due today with industrial and manufacturing production due tomorrow. The Bank of England’s Quarterly Inflation Report and the ILO unemployment rate could see the trend in sterling remain neutral this week.

US Dollar – US Markets

The dollar has gained against the pound and euro overnight, trading at 0.65 and 0.73 respectively. The dollar has also trimmed losses against its major European currency partners after a rise in risk appetite led to a flow of funds away from the safe havens overnight.
Jobless figures released in the US on Friday show non-farm employers cut 539,000 jobs from the US economy in April, the smallest number since October. This takes the unemployment rate to the highest level in 26 years. However despite the record figure, equities and commodity prices responded well to the data as it supports the view that the pace of recession may be easing in the US. While recovery is not yet underway, economists are predicting we could see a return to growth in the last quarter of 2009. Federal Reserve Chairman Ben Bernanke is due to speak in the US today.

Euro – European Markets

The euro has risen to 1.36 against the US dollar and is trading slightly higher against the pound and Australian dollar this morning, consolidating on improved risk. Having also gained on the Swiss franc and Swedish kronor, the euro has declined against the yen and kiwi dollar.

The euro rose 1.7% against the dollar on Friday on the back of US employment figures and positive market reaction to the ECB decision. The ECB voted to cut interest rates to 1% and implement a plan to purchase debt and increase money supply. In contrast to the recent opinion that the ECB is “behind the curve” when it comes to economic policy, these moves placed the ECB in a more positive light and the euro gained ground as a result. There is no major data in the eurozone today with the Germany’s consumer price index due tomorrow.

Other Currencies – Highlights

The Australian dollar hit 77 cents against the US dollar overnight as jobless data in the US fuelled demand for the Aussie. Demand for the Australian dollar was also driven higher by firmer commodity prices internationally and an increase in carry trades amidst the view that recession is easing.

The Canadian job market may be showing the green shoots of recovery after it unexpectedly added jobs in April. In combination with news that US employment fell less than expected, the Canadian dollar reached a six-month high against its US counterpart, gaining 2.4% in five days against the greenback. The Canadian unemployment rate is currently 8%. The Canadian Prime Minister has also claimed improving financial and labour market conditions means the economic slump may be nearing an end. New house pricing figures are due in Canada today.

Currency exchange rates are likely to be subject to volatility today as interest rate decisions from the Bank of England and ECB are due. The results of “stress tests” on US banks are also due later in the day and this could affect exchange rates for all the major currencies. The Australian dollar reached a 12-year high against the pound overnight as positive figures from the US and buoyant Australian retail sales improved investor confidence.

Pound Sterling – UK Markets

Sterling exchange rates have dipped slightly this morning as investors remain cautious ahead of the Bank of England interest rate decision, although the pound remains supported above 1.5 on the US dollar and 1.13 against the euro. The pound is currently trading at 2.0 against the rising Australian dollar and 2.55 against the kiwi.

The MPC is widely expected to keep interest rates on hold at 0.5% and focus on quantitative easing in the coming months as the UK economy enters a recovery phase. By contrast the ECB is expected to make a reduction to the base rate and we are likely to see some sterling-euro volatility surrounding the announcements this afternoon. This morning Barclays has announced a pre-tax profit rise of 15% for the first quarter of 2009. The profit is largely due to a strong performance in the investment banking arm and comes despite the bank eschewing government bail outs late last year. The Bank of England decision is due at noon.

US Dollar – US Markets

The dollar has experienced choppy trading overnight as markets await the results of stress tests on US banks. This morning the dollar has gained 0.5% against the euro and 0.3% against the pound while also gaining against the yen and Canadian dollar.

US news is set to dominate international headlines today as results of the Obama administration’s “stress tests” on major banks are due. The banking sector is crucial to recovery in the wider economy and the tests are designed to ascertain the level of stability in the major banks. Economists are predicting Bank of America to show the biggest credit shortfall with at least 10 of the 19 banks expected to need additional capital. Treasury Secretary Timothy Geithner reassured markets yesterday by stating that none of the major banks are at risk of insolvency. Official figures also released yesterday showed private sector job losses in April were at their lowest level in 5 months and this supported further market gains. Continuing jobless claims figures and a speech from Ben Bernanke are also due today.

Euro – European Markets
The euro is under pressure this morning, having dipped against most of its currency partners amidst uncertainty surrounding the ECB decision. The euro is currently valued at 1.32 against the US dollar and 0.87 against the pound.

The ECB is widely expected to reduce the base interest rate by 0.25% to 1%. ECB President Trichet has spoken in the past about more unconventional monetary policy and the ECB is expected to move towards quantitative easing to stimulate the eurozone economy. Uncertainty about how and to what extent the ECB will do this is pressuring the euro as quantitative easing is still regarded as a relatively risky policy. Switzerland’s CPI released this morning shows a 0.9% rise in prices for the month of April, bringing annual inflation to -0.3%. German factory orders are also due this morning. The ECB decision, followed by a speech from President Trichet is due this afternoon and we can expect some exchange rate volatility in all the major currencies.

Other Currencies – Highlights

The pound has slid dramatically against the Australian dollar overnight, touching on a 12-year low as positive reports from the US economy and strong Australian retail sales improved confidence of a global recovery. The Aussie has been a major beneficiary of the recent bullish run in equities as improved export and commodity prices bode well for the trade orientated Australian economy. The Aussie dollar also reached a seven month high against the euro ahead of the ECB interest rate announcement this morning. Also released this morning was the Australian unemployment rate which has actually improved, falling from 5.7% to 5.4% for April. By contrast the New Zealand unemployment rate has increased to 5%, from 4.7% the previous month.

The bullish trend in equities and currency exchange rates continues this week as both the euro and pound reached four month highs against the US dollar. Improved prospects of global recovery are encouraging the flow of funds away from safe havens and many of the “riskier” currencies are receiving a boost in exchange rates this week.

Pound Sterling – UK Markets

The pound reached a four-month high against the US dollar yesterday but has trimmed gains to sit just above the 1.5 level. The pound is currently trading above 1.13 on the euro and has lost ground against the Australian, New Zealand and Canadian dollars.

The gradual upward trend in sterling is a reflection of improved growth prospects for the global economy. While the current economic news remains grim, the trade orientated UK economy means sterling is likely to benefit from improved growth prospects. The UK is also viewed as less deeply entrenched in recession than the Eurozone and Japan and this too is supporting the pound. The PMI for the service sector in the UK has climbed to 48.7, from 45.5 the previous month, which is positive news considering the service sector represents 50% of the UK economy. Halifax figures out this morning show house prices fell 1.7% in April, taking the annual rate of decline to -17.7%. There is no further data in the UK today and the Bank of England interest rate decision is due tomorrow.

US Dollar – US Markets

The dollar is trading at lower levels against its major currency partners on the back of improved risk appetite. After touching on four-month lows against the pound and euro yesterday, the dollar is currently trading at approximately 0.66 and 0.75 respectively.

The results of “stress tests” on US banks are due tomorrow and this is likely to be a source of volatility for markets. Of the nineteen banks tested it is expected that Bank of America will need about USD34 billion in new capital while shortfalls at Citigroup and JPMorgan Chase & Co are expected to be more limited. Yesterday Ben Bernanke testified in front of the congressional Joint Economic Committee yesterday and reiterated the Fed’s commitment to the quantitative easing programme. Investors took this as a good sign and market confidence improved, ultimately boosting exchange rates for the higher yielding currencies yesterday. Brent crude remains in the region of USD54 a barrel despite the relatively low spring time demand for the commodity. There is no major data due in the US today with initial jobless claims, another speech by Ben Bernanke and the stress tests results due tomorrow.

Euro – European Markets
The euro also reached a four-month high against the US dollar yesterday on the back of strong equities and positive sentiment in the US. This morning however, the euro has dropped back to 1.32 against the dollar ahead of the ECB interest rate decision tomorrow.

EMU retail sales figures have remained flat for March, declining by 0.6% for the second month in a row. The Purchasing Manager Index for services in the eurozone released this morning showed an improvement in April, climbing to 43.8 after 43.1 the previous month. Plans for Fiat to take over the European operations of General Motors could result in over 10,000 job losses as the merger would create the world’s second largest car firm. The German manufacturing sector is expected to be particularly hard hit. There is no further data in the Eurozone today with the ECB interest rate decision followed by President Trichet’s speech due tomorrow.

Other Currencies – Highlights

The Australian dollar reached a seven month high against the euro overnight as uncertainty over the ECB decision and improved risk benefitted the aussie and pressured the euro. The gradual upward momentum returning to commodity prices is benefitting some of the commodity based economies and the South African rand and Australian dollar have both regained ground recently. Australian retail sales figures have exceeded market expectations, climbing by 2.2% in March. The official trade balance also improved to AUD2.5 billion in March. The official unemployment rate and employment change figures are due tomorrow.