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Foreign exchange rates for the pound remain bearish, sinking to an 11-day low against the single currency yesterday following strong industrial orders in the eurozone. US markets are optimistic this morning amid speculation that Ben Bernanke will be reappointed for a second term, while Israel’s central bank has voted to increase interest rates by 0.25%.

Pound Sterling – UK Markets

Sterling foreign exchange rates continued to slide against the euro yesterday, touching on an 11-day low of 1.1461 following strong European data. This morning the pound is weaker against its major currency partners, sinking to 1.63 against the US dollar and still trading around the 1.14 level against the euro.

Sterling sentiment is weak at present, particularly against the US dollar and euro following news that the eurozone is emerging from recession. The UK is expected to return to growth in the third quarter, with markets predicting a 0.5% expansion and this morning’s figures show UK mortgage approvals have improved for the seventh month in a row, climbing 7.4% in July. There is no UK data today with the Bank of England’s Charles Bean due to speak this afternoon.

US Dollar – US Markets

US foreign exchange rates are stronger this morning, gaining on all its major currency partners with the exception of the Japanese yen. The dollar has gained 0.3% on the pound and 0.14% on the euro to trade at 0.61 and 0.70 respectively.

US markets have opened optimistically following speculation that President Obama will reappoint Ben Bernanke as chairman of the Federal Reserve for a second term. Bernanke is highly regarded for his handling of the financial crisis and the news has led to gains for the greenback this morning. The US housing price index and consumer confidence figures are due today.

Euro – European Markets

Foreign exchange rates for the euro reached an 11-day high against the pound yesterday on the back of positive economic data. This morning the euro has dipped against the US dollar to 1.42, while gaining against the pound and Australian currency to 0.87 and 1.70 respectively.

The 3.1% rise in European industrial orders announced yesterday added to the growing evidence that the eurozone is emerging from recession. This supported euro foreign exchange rates, sending the euro to a multi day high against the pound. This morning’s figures show seasonally adjusted GDP expanded by 0.3% in the second quarter for Germany, while Swiss unemployment has climbed to 3.95 million. There is no further data today.

Other Currencies – Highlights

Australian foreign exchange rates rose to a 13-year high against the pound yesterday, as risk sentiment drove appetite for the higher yielding currencies. A weak pound also helped the Aussie to the 13-year high, and the New Zealand dollar also posted gains on the pound. This morning the Australasian currencies have trimmed gains after Chinese equity markets dipped overnight.

Israel’s central bank has voted to raise interest rates by 0.25%, becoming the first central bank to do so. This has prompted speculation that other central banks will soon follow suit, and the Israeli shekel has gained 0.35% on the pound.

Federal Reserve chairman Ben Bernanke addressed Congress yesterday to give a cautious assessment of the US economy. Bernanke noted that while there are tentative signs of recovery in the US, there is not enough slack in the financial system for the Fed to proceed with tightening monetary policy. This knocked risk appetite in the market, snapping recent equity market gains and drove investors to favour the safe haven currencies.

Pound Sterling – UK Markets

The pound shed 0.57 pence against the euro yesterday as exchange rates dipped due to investor fears over the state of the UK budget deficit. This morning the pound has continued to decline, falling to 1.63 against the US dollar and 1.15 against the euro.

With government debt currently running at 56% of GDP, there are growing concerns over how the government plans to tackle the massive debt that could prove inflationary. Charles Bean noted that the weak pound is stimulating the economy through improved export prices and this is aiding UK recovery. This morning’s MPC minutes show the committee unanimously voted to leave QE levels unchanged, as they felt the slowing pace of decline meant no further stimulus was necessary in July. The MPC will meet again in August.

US Dollar – US Markets

US dollar exchange rates have strengthened following Bernanke’s speech to Congress yesterday in which he outlined US economic prospects. This morning the dollar has gained against all its major currency partners with the exception of the yen, climbing to 0.70 versus the euro and 0.61 against a weaker pound.

Ben Bernanke gave a cautious assessment of the US economy to Congress yesterday, stating that while there are “tentative signs of recovery” the situation is highly unstable and Fed policy will be focussed on “fostering economic recovery”. He also noted that unemployment will likely remain high into 2011 with a slow and gradual climb out of recession. With no tightening of monetary policy due in the immediate future, risk appetite took a hit, sending the yen and greenback exchange rates higher. The house price index is due today in the US.

Euro – European Markets

Euro exchange rates are mixed this morning, climbing against the higher yielding pound, Australian, New Zealand and Canadian dollars while losing ground to the yen, US dollar and Brazilian real.

Industrial new orders across the eurozone have fallen -0.2% this month, taking the annual rate of decline to -30.1%. This is in line with falling industrial production across the region as recession contracts almost all sectors of the economy. European equities gained 0.8% yesterday and the euro remains firm in the region of 1.42 against the US dollar. There is no further data in the eurozone today with current account figures due tomorrow.

Other Currencies – Highlights

Australian dollar exchange rates reached a one-month high against the pound overnight, as consumer inflation figures slowed to 0.5%, the lowest level in a year. In combination with negative news in the UK, this allowed the Australian dollar to consolidate on the pound. The news also suggests that the Reserve Bank will leave interest rates on hold for some time.

Japanese yen exchange rates have surged overnight, amid concerns over the pace of global economic recovery. The Japanese yen gained the most against the euro, South African rand and British pound as low risk appetite in the market led investors to seek out the safe havens.

The annual rate of inflation in the UK has fallen below the Bank of England’s 2% target for the first time in 21 months. Today’s calendar is packed with economic data that could cause a reshuffling of currency exchange rates that will potentially benefit some of the higher yielding currencies. Markets will focus on US retail sales figures and the producer price index out this afternoon.

Pound Sterling – UK Markets

Sterling currency exchange rates have recovered this morning, boosted by falling inflation rates in the UK. After touching on a five-week low against the euro and falling to 1.60 against the US dollar yesterday, the pound is currently trading at 1.16 and 1.63 against the euro and dollar respectively.

Consumer prices in the UK have risen 0.3% on the month to June yet the annual inflation rate has fallen to 1.8%. This is the first time in 21 months inflation has fallen below the Bank of England’s 2% target. The retail price index also rose by 0.3% in June and has fallen by -1.6% annually, dragged lower by a reduction in mortgage approvals. These figures could be interpreted positively by markets as an indication that inflation is levelling off. The DCLG house price index has fallen by -12.5% on the year, better than market expectations and inline with observations that the property market could be bottoming out. Tomorrow, average earnings and the unemployment rate are due in the UK.

US Dollar – US Markets

The greenback has lost ground this morning with currency exchange rates declining on the back of positive market data in the UK. The dollar has gained against the yen, Brazilian real and Swiss franc however, as investors diversify from the traditional safe havens.

US equity market staged a minor rally yesterday as a report suggested corporate earnings at Goldman Sachs could rise as much as 15% The S&P closed the day 2.5% up and the boost allowed sterling exchange rates to recover against the dollar. This rally however was complicated by the fact that Larry Summers, an economic advisor to the White House, commented that we may not have seen the bottom for GDP yet and underlying trends remain uneasy. US retail sales and the producer price index will be the focus of foreign exchange markets later in the day.

Euro – European Markets

Euro currency exchange rates are weaker this morning, sinking on the back of downbeat industrial production figures and increased risk appetite. After surging to a five-week high yesterday, the euro has lost 0.5% to the pound while posting gains on the yen, US dollar and Swiss franc.

Eurozone industrial production has fallen 0.5% in May, with the annual rate of decline running at -17%. This is a slight recovery from the -21.6% decline predicted the previous month but is still a massive knock to confidence in the euro. The EUR/USD currency exchange rate has found support at 1.39 after being rejected at 1.40 yesterday. Also this morning the German ZEW economic survey has fallen to -39.5 in July, in contrast to market expectations. As the largest economy in the region, confidence in the German economy is crucial and these figures are likely to affect euro sentiment throughout the day.

Other Currencies – Highlights

Hungarian inflation rates have also unexpectedly slowed in June, falling to 3.7% from 3.8% the previous month. This increases chances of an interest rate cut for Hungary as stable inflation and a less volatile currency are improving investor confidence in the forint. Currency exchange rates for the Hungarian forint have risen to 275.79 per euro this morning. After declining 16% against the euro in the last year, the forint has recovered 5% in the last three months.

Japanese stocks rose overnight, led higher by the US market rally and the expectation of positive corporate earning figures. The yen has lost ground as global confidence rises and markets await results of the Japanese election and Bank of Japan interest rate decision.

The Bank of England has voted to leave interest rates on hold and decided against expanding its quantitative easing programme, despite the downbeat outlook for the UK economy. Currency rates for the euro are stronger on the back of positive German economic data while the US dollar and yen have slipped following a small rise in risk appetite in the market.

Pound Sterling – UK Markets

Sterling currency rates have recovered slightly this morning ahead of the Bank of England interest rate decision. The pound has gained against the US dollar and Japanese yen, and is unchanged against the euro, currently trading at 1.15.

Today the MPC voted to keep interest rates on hold at 0.5% and maintain current levels of quantitative easing at GBP125 billion, despite the dire production and GDP figures released in the last week. Bank of England governor King has announced that economic recovery is expected to be a “long hard slog” and more action could be needed to kick-start a sustainable recovery in the UK. This morning’s figures show the UK trade deficit has narrowed to GBP-6.3 billion, the lowest level since June 2006. The interest rate decision is due at noon.

US Dollar – US Markets

US currency rates are mixed this morning as the dollar has gained against its Asian currency partners but weakened against the European currencies. In early trading this morning the dollar lost half a percent against the pound and euro, currently trading at 0.61 and 0.71 respectively.

The IMF released updated forecasts yesterday, revising global growth down to -1.4% this year, with a 2.5% expansion predicted in 2010. The report also announced that recovery in the G8 nations could be quicker than expected and the priority for governments should be devising an exit strategy from stimulus packages, while maintaining low inflation and steady growth. However the largely positive report failed to trigger gains in currency exchange rates, as markets were more interested in the results of the G8 summit. Jobless claims figures are out in the US today.

Euro – European Markets

Currency rates for the euro have strengthened this morning against its international currency partners, gaining 0.5% on the dollar and 0.9% on the yen due to increased risk appetite in the market. The euro is currently valued at 0.86 versus the pound and remains just below the 1.4 level against the US dollar.

The German consumer price index has risen 0.4% on the month for June, completing a surprisingly optimistic picture of the German economy this week. As the largest in the eurozone, a recovery in the German trade and export sector could be instrumental in helping to lift the rest of the euro economy out of recession. The G8 summit continues in Italy today, with economy top of the international agenda and the ECB monthly report is also due today.

Other Currencies – Highlights

Aussie and Kiwi currency rates rose against the euro and pound this morning, boosted by market optimism and the UK interest rate decision. Australian unemployment levels rose in June to 5.8%, a drastic rise from last year’s low of 3.9%. However this failed to disrupt Aussie currency rates too much, as the 21,000 jobs lost was largely in line with market expectations.

Central banks in Chile and Peru are set to cut interest rates today, after annual inflation figures in Chile fell below government targets. Chile has already reduced the base interest rate by 7.5% this year, more than any other central bank as the economy suffers due to declining export prices and reduced consumer demand. Economists are also predicting Peru will reduce its base interest rate to 2.5% for the sixth consecutive month following the affects of recession on the economy.

GDP for the first quarter has contracted -2.5% in the eurozone, a figure in line with market expectations and one that takes the annual rate of decline to -4.9%. Exchange rates for many of the high yielding currencies are lower this morning, particularly the pound which is under pressure in anticipation of trade balance figures and the MPC interest rate decision due tomorrow.

Pound Sterling – UK Markets

Sterling exchange rates hit a one-month low against the euro yesterday, the third consecutive day of losses as the pound was put on the back foot from weak industrial production and manufacturing data. This morning the pound has declined to 1.6 against the US dollar and 1.15 against the euro, sliding ahead of the interest rate decision tomorrow.

The first round of second quarter GDP predictions has arrived with the NISER predicting the economy will shrink by -0.4%. Halifax house pricing figures released this morning show that prices have declined -15% on the year, with a -0.5 decline in June partially reversing the 2.6% rise in May. Weak UK data is leading to speculation that the Bank of England will add to its quantitative easing programme and this has reduced support for the pound. Today is light for UK data with sterling exchange rates likely to be affected by trade balance and GDP figures out tomorrow.

US Dollar – US Markets

US dollar exchange rates have climbed this morning, continuing gains from recent days on the back of market risk aversion. The dollar is currently valued at 0.71 versus the euro and 0.62 versus the pound.

The G8 summit kicks off today although with Chinese President Hu Jintao delayed, debate over the status of the USD as the premier reserve currency is likely to be put on hold. Recent uncertainty in the market has led investors to flock to the safe haven dollar in droves, quelling doubts over the position of the dollar as reserve for the moment. The Japanese yen has also risen to six-week highs against the euro and pound on the back of uncertainty. Today in the US MBA mortgage application figures are released with jobless claims figures out tomorrow.

Euro – European Markets

Euro exchange rates reached a one-month high against the pound yesterday, boosted by bullish German data and weak figures from the UK. This morning the euro has continued to gain, currently trading at 0.86 versus the pound and 1.39 against the US dollar.

Euro exchange rates received a boost yesterday from German factory orders which unexpectedly jumped to 4.4%. This is in contrast to industrial production figures in the UK, where markets expected a 0.2% rise but in fact got a -0.5% contraction. This morning first quarter GDP figures for the eurozone show the economy contracted -2.5% in the first quarter, in line with market expectations. German industrial production figures are also due this morning and this is likely to provide further insight into how the eurozone economy is faring.

Other Currencies – Highlights

Australian dollar exchange rates reached a three-week high against the pound yesterday as weak figures in the UK and the RBA interest rate decision renewed optimism in the Australian economy. Consumer confidence in Australia also surged by 9% in July and new mortgage lending rose by 2.2%. However despite the positive data, the pound eventually trimmed losses to close the day up against the Aussie dollar following news that Asian economies face a steep climb out of recession. Internationally, appetite for risk is low and this is putting pressure on exchange rates for the Aussie and Kiwi dollar.

Both the ECB and the Bank of England opted to leave interest rates unchanged yesterday, at 1% and 0.5% respectively. The Bank of England also opted to leave QE levels unchanged. Today foreign exchange markets will be interested in US employment data and this could influence the underlying dollar trend in the coming week.

Pound Sterling – UK markets

UK foreign exchange rates have declined from the seven-month high against the dollar and five-month high against the euro earlier this week on the back of political uncertainty in the UK. Despite positive economic figures, news that the Labour government is facing MP resignations dragged the pound down to 1.60 against the dollar and 1.13 against the euro. UK foreign exchange rates have also declined against a basket of international currency partners.

The UK producer price index out this morning has hit a multi-year low, largely on the back of falling oil prices. Yesterday, the Bank of England voted to keep interest rates on hold at 0.5% and maintain current levels of quantitative easing. This led to investor optimism that the MPC plan to stimulate the economy may be working. However despite the positive news, the fragile political situation has been negative for sterling exchange rates. Today, foreign exchange markets in the UK are likely to be affected by US employment data and political news from the government.

US Dollar – US Markets

Results are mixed for the US dollar this morning as foreign exchange rates have been volatile in the run up to the release of US employment data. The dollar has declined against the pound and euro this morning, but has gained against the yen, Canadian dollar and South African rand.

Employment data released in the US today is likely to be the major influence on foreign exchange rates internationally as the labour market is central to global recovery. The current market consensus is for a 0.3% rise in the US unemployment rate to 9.1%. Yesterday the US currency dipped in response to concern over the dollar’s status as an international reserve  although this ground has been recovered this morning. Average hourly earnings, the non-farm payroll and official unemployment rate are released today.

Euro – European Markets

Foreign exchange rates for the eurozone have improved this morning with the euro currently trading above 1.4 against the US dollar and 0.88 against the pound. The euro has also gained against the yen and Canadian dollar while losing ground to the Aussie and Kiwi currencies.

The ECB left interest rates unchanged at 1% yesterday and President Trichet commented that they may remain on hold for some time, as the euro economy is expected to begin a gradual recovery in 2010. With the eurozone expected to experience a greater downturn than the UK, euro foreign exchange rates may be slightly bearish versus the pound in the short term. There is no data due in the eurozone today.

Other Currencies – Highlights

The Australian and New Zealand dollars rose for the third consecutive week against the yen as investors favoured the higher yields based on speculation that the global recession is abating. An interest rate decision from the Reserve Bank of New Zealand is due next week and the NZD could experience some volatility in the run up to this. In the meantime, global foreign exchange trends based on US employment data are likely to affect foreign exchange rates for the Kiwi and Aussie currencies.

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.

The euro is sitting at a 5 week low against the US dollar this morning as the single currency continues to be plagued by uncertainty surrounding ECB strategy. Larger than expected credit write downs at Bank of America yesterday reignited fears that the worst is not over in the financial crisis putting an end to the recent 6 week rally in global equities.

Pound Sterling – UK Markets

Sterling has declined against the US dollar, finding support just above the 1.45 level, as a wave of risk aversion swept markets overnight. This morning the pound is largely unchanged against the euro, trading in the vicinity of 1.12 and is down over 1% on the New Zealand dollar.

Inflation figures out this morning show consumer prices falling in the UK. The core consumer price index for March is running at 2.9%, taking the annual rate of inflation to 1.7%. The retail price index is running at 0% for March, taking the annual rate to -0.4% largely due to falling house prices and lower interest rates. The lower cost of energy is also fuelling the downward trend and this is helping to bring inflation inline with the government target of 2%. This morning Tesco has reported a GBP3 billion profit, a 10% rise since the last financial year. We can expect some volatility for the pound during the rest of the week with Bank of England minutes, the annual budget, ILO unemployment rate and continuing jobless claims out tomorrow.

US Dollar – US Markets

The US dollar strengthened overnight, trading in the vicinity of 0.77 versus the euro and 0.68 versus the pound as credit losses at Bank of America prompted fresh fears over the stability of the financial sector. This morning the higher yielding currencies have trimmed losses against the dollar with the pound, Aussie and Kiwi dollars all staging minor rallies.

Bank of America’s corporate earnings released yesterday show that despite a USD4.2 billion first quarter profit, the bank will be forced to set aside over USD13 billion to cover toxic loans. This ends up close to a break even performance and the news rattled markets, renewing fears that the worst of the recession may not be over. Bank of America shares lost 24% while Citigroup shares declined more than 16%. The news also affected global equities with the S&P closing down 4.3% and the Dow Jones losing 3.6%. The losses also put an end to the 6 week rally in global markets and economists predict markets are entering a phase of short term consolidation with credit losses expected to get worse before they get better. In the US today Treasury Secretary Geithner is to make a speech and the Washington Post Consumer Confidence survey is due.

Euro – European Markets

The Euro continues to fall against the dollar, reaching a five week low of 1.28 during Monday’s US session and remains bearish this morning. Against the pound the euro staged a slight recovery yesterday and the euro has also declined against the Australian and New Zealand dollars.

Statistics released in Germany this morning show the producer price index fell -0.7% in March, taking the annual rate to -0.5%. The public debate between ECB members over the best course of action for the Eurozone continues to pressure the single currency in the absence of any positive financial data. Uncertainty over the pending ‘unconventional measures’ from the ECB is making investors nervous although a reduction in the base rate by 0.25% seems likely. Results of the German ZEW economic sentiment survey are due out this morning.

Other Currencies – Highlights

Asian equities fell across the board yesterday, triggered by renewed fears over the state of the financial sector in the US. The yen ended three days of gains against the euro and dollar although recent signs of improvement in the Chinese economy have acted as a buffer to drastic selling. Also this morning the Indian Central Bank has reduced the repo rate, at which the bank makes short term loans into the economy, by quarter of a percentage point to 4.75%. This is the sixth time since October the rate has been reduced and the Indian Central Bank expects growth to slow to 6% this year. The Canadian Central Bank is to make an interest rate decision today.

The CBI has predicted the UK economy will contract by 3.9% in 2009, more than twice the amount predicted by Alistair Darling late last year. The euro has reached a one month low against the dollar amid concerns that the ECB is not doing enough to safeguard the ailing eurozone economy and US leading indicators released today are expected to show signs of recession easing in the US.

Pound Sterling – UK Markets

Sterling has lost ground against its major currency partners this morning, having declined over 1% against the US dollar and Japanese yen as the looming budget puts pressure on the pound.

The CBI have predicted the UK economy will contract 3.9% in 2009 with a total economic contraction of 5.1% by the end of the recession. This is more than twice the decline predicted by Alistair Darling in his pre-budget report and Wednesday’s budget is expected to downgrade economic forecasts while highlighting increased government borrowing. However recent economic news shows the pace of decline is slowing in both the US and UK and the CBI expects the economy to return to positive growth by the second half of 2010. While the pound remains weak internationally, this could aid recovery through more competitive pricing and there is a reported 1.8% increase in house prices in March. There is no major data released in the UK today.

US Dollar – US Markets

The dollar is stronger this morning, reaching a one month high against the euro and gaining over 1% on the pound after a better than expected performance from Citigroup on Friday boosted Wall Street and global equities. Citigroup reported a profit of USD1.6 billion, its first in nearly 2 years and this improved market sentiment and added to the view that the US economy may be taking its ‘first steps’ towards recovery.

Today Bank of America, Google and Yahoo are to release corporate earning figures and this could lead to a further revival of risk appetite. The leading indicators index is also out today and this is expected to show an easing of recession in the US as Federal cash injections and lower interest rates are work to boost spending and investment. Consumer confidence figures and jobless claims are due out later in the week.

Euro – European Markets

The euro has declined against the US dollar and yen this morning but improved against the pound ahead of the UK budget due on Wednesday. Dropping below 1.3 versus the US dollar, the euro has reached a one month low amid concerns the ECB is not doing enough to protect the eurozone economy. The euro has also hit a 3-week low against the yen.

As the US and UK economy are starting to show signs of the recession easing, the decline appears to be deepening across the eurozone and this, along with mounting concerns over the effectiveness of the ECB is placing the euro under pressure. Comments from ECB members Axel Weber and President Trichet last week also increased speculation of further interest rate cuts. There is no major data released in the eurozone today with Germany’s producer price index and ZEW economic sentiment survey out tomorrow.

Other Currencies – Highlights

Currency exchange rates for the Australian and New Zealand dollars continue to shadow investor appetite for risk. After reaching a 6-month high against the euro on Friday with news of Citigroup profits, the Aussie and Kiwi dollars have slumped this morning with rumours of splits in the ECB leading investors to favour the safe haven currencies. Figures out this morning show Australian producer prices fell 0.4% in the first quarter of 2009 and are running at a 4% increase on the year.

The yen continues to strengthen despite declining export figures and the deteriorating Japanese economy. The Bank of Japan is expected to slash economic forecasts this week as consumer demand collapses and the Japanese economy is expected to contract by 4.2% in 2010. Japan’s leading economic indicators and Canadian foreign investment figures are released today.

Better than expected jobless data in the US yesterday bolstered investor hopes of a tentative stability in the world’s largest economy. While economic data continues to be mixed, there is growing evidence the rate of decline is slowing in the US and to a lesser extent, the UK. This morning sterling has fallen from its 3 month high versus the US dollar but continues to gain against the euro.

Pound Sterling – UK Markets

The pound declined against the US dollar yesterday as better than expected jobless data in the US boosted hopes of a tentative recovery. This fuelled demand for the dollar at the expense of the pound and euro. Sterling has fallen away from 3 month highs against the dollar to trade in the region of 1.48 this morning but continues to gain on the euro, trading at the interbank rate of 1.13 early this morning.

David Miles, chief economist at Morgan Stanley in the UK has added to the positive chorus, noting that recession may ease as quantitative easing and other government initiatives begin to trickle down to the wider economy. Miles is set to replace David Blanchflower on the MPC in June. However, several large question marks remain over the UK economy and sterling exchange rates remain subject to international appetite for risk. The Council of Mortgage Lenders has cited negative equity as a factor in the low property market turnover and sentiment towards sterling is likely to remain muted in the lead up to next weeks budget. There is no data out in the UK today.

US Dollar – US Markets

The US dollar strengthened broadly overnight as better than expected jobless data boosted hopes that the pace of recession may be easing. The Philly Fed manufacturing survey also showed the rate of decline is slowing although both housing starts and new building permits continued to fall on their way to record levels in March.

This news provided fuel for a dollar rally against its international currency partners as it boosted hopes we are beginning to see the ‘green shoots’ of recovery in the US. This morning search engine Google has announced strong profits for the first quarter of 2009, rising to USD 1.42 billion which is significantly better than expected given the downturn in advertising spending as a result of recession. JP Morgan announced better than expected profits yesterday, sending the FTSE 100 to close 2% higher and Citigroup is to release company earnings later in the day. This, combined with a speech by Ben Bernanke could have a positive impact on Wall Street and international markets.

Euro – European Markets

The euro is broadly weaker this morning following Trichet’s comments that the ECB must do everything possible to restore corporate confidence, increasing speculation of further rate cuts and quantitative easing in the Eurozone. The euro continues to decline against the pound but has found support at the 1.3 level versus the US dollar.

This morning Sony Ericsson has announced 2,000 job cuts in an attempt to save EUR400 million after an extremely difficult first quarter. This follows Nokia’s announcement yesterday of a 90% profit fall in the first quarter of 2009 and both companies expect to face challenging markets throughout 2009. The EMU trade balance is released this morning with the producer price index for Germany due early next week.

Other Currencies – Highlights

News that China’s growth rate has fallen to 6.1% prompted a return to safe haven currencies and this sent the Australian and New Zealand dollars lower against their international currency partners overnight. The Aussie and Kiwi dollars both sunk to 2 month lows against the Japanese yen. Australian growth and budget forecasts due in May are now expected to be significantly worse than predicted and New Zealand inflation rates have fallen to 3% as consumer demand wanes in the midst of global recession. This is prompting speculation that the RBNZ may leave interest rates unchanged again this month. The Australian import and export price indices are out this morning.