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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.

Figures released this morning show UK GDP contracted 1.5% in the final quarter of 2008. This takes annual growth to -1.9%; a figure largely in line with market expectations. Wall Street gained over 3% yesterday, the largest gain in a month, after comments from Head of the Federal Reserve Ben Bernanke quelled investor fears over the state of the US banking sector.

Pound Sterling – UK markets

The Pound is up 0.6% on the Dollar this morning, trading at 1.45 on the back of increased risk appetite after Wall Street gains yesterday. The Pound is also up against the Euro, Yen and Australian Dollar, trading at 1.13, 141 and 2.22 respectively.

UK GDP figures out this morning show the economy contracted by -1.5% in the fourth quarter of 2008. However despite this, the Pound has strengthened as a result of positive market sentiment in the US. Minutes from a meeting of EU officials yesterday showed concern over the ‘financial stability’ of the British economy following the rapid demise of the Pound late last year. The Pound has fallen 23% against the Euro as a major trading partner, this weakness is a concern for the Eurozone. Exceptionally high volatility over recent months is also undermining financial stability. UK statistics yesterday showed mortgage approvals down 40% on this time last year and unemployment continues to rise. However the CBI Distributive Trades survey was less negative than expected and the retail sales index rose from -47 last month to -25 this month due to more positive sales figures. The Bank of England MPC meets next Thursday and market expectations are for a further 0.5% rate reduction. Reductions beyond 1% are regarded as less significant and quantitative easing is likely to be the path of the government over the coming months. There is no further data in the UK today.

US Dollar – US Markets

Mixed results for the Dollar overnight as increased risk appetite led to a redistribution of investor funds. The Dollar weakened against the Euro and Pound to trade at 0.77 and 0.68 but retained gains against some of its Asian and European currency partners.

Head of the Federal Reserve Ben Bernanke quelled fears over the state of the US banking system yesterday in a speech noting that nationalisation of major banks would not be necessary. Bernanke stressed the role of government as supervisor rather than shareholder and Wall Street posted its largest daily gains in a month. President Obama also addressed the nation, detailing aspects of an ambitious government plan which includes both stimulating and greening US industry, cutting taxes and halving the US budget deficit within the next five years. Despite the inevitable criticism for the over ambitious nature of the plan, stock and equity markets gained confidence, improving global risk appetite. Also yesterday the Washington Post survey showed US consumer confidence plunged 10 points to a record low in February, on the same day as the German IFO revealed the same results in the Eurozone. US Home sales figures are out later today.

Euro – European Markets

The Euro has gained against the Dollar to trade at 1.28 and is up against the Yen as well as its European currency partners.

Stocks in Europe and Asia advanced following news from the US that the government would not have to nationalise major banks. Shares in Deutsche Bank and PNB Paribas, Germany and France’s largest banks both surged more than 7%. German GDP figures released this morning show the economy contracted -2.1% in the fourth quarter of 2008, reflecting the rapid deterioration of the European economy. This takes annual growth to 1.6% a figure that was largely in line with market expectations. The ECB has strongly hinted at a further interest rate reduction in March. The German consumer price index and unemployment figures are out tomorrow.

Other Currencies – Highlights

The Australian and New Zealand Dollars rallied overnight, following comments from Ben Bernanke which served to strengthen risk appetite internationally. The Australasian currencies continue to shadow US equities which remain the primary determinant of market sentiment.

Japanese exports have plunged 45.7% in January, taking them to the lowest figure in 10 years as a result of reduced demand from Japan’s major trading partners. The decline was fuelled by a 53% drop in exports to the US, 47% to the Eurozone and similar steep declines to China and other Asian economies. The Canadian Dollar is up to 1.24 against the US while the Swiss Franc is down on the Dollar, a further symptom of increased appetite for risk.

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The Pound fell to a two week low against the Dollar yesterday as minutes from the MPC meeting revealed quantitative easing is increasingly likely for the UK. The Euro is under pressure due to concerns over the economic situation in Eastern Europe and the US has passed a $275 billion package to address the crisis in the housing market.

Pound Sterling – UK markets

The Pound is gaining against the US Dollar this morning, currently trading at 1.43 after reaching a two week low yesterday. The release of MPC minutes indicating that quantitative easing was likely damaged the value of the Pound, although it was the Euro that came under pressure over concerns surrounding Eastern European economies. The Pound-Euro exchange rate is currently 1.13 and Sterling has gained against its major foreign currency partners.

Having revealed an 8-1 vote in favour of a 0.5% reduction in the base rate, the MPC minutes also indicated that quantitative easing is imminent as the Bank will buy gilts and other securities to increase the supply of money into the economy. With interest rates effectively at zero, the Bank is seeking more unconventional methods of unlocking credit markets and alleviating toxic debts. Sentiment regarding Sterling has turned marginally positive as markets focus on bad news coming from the Eurozone and Asian economies. This has allowed Sterling to stage a minor rally against the Euro and Japanese Yen. Money supply data is out in the UK this morning and retail sales figures are due tomorrow.

US Dollar – US Markets

The Dollar has declined over 1% against the Euro this morning as fears abate over European exposure to bad debts and the US stimulus packages revives appetite for risk. The Dollar is also down over 1% on the Australian and Kiwi Dollars and is down to 0.69 against the Pound.

Yesterday’s figures in the US revealed housing starts and new building permits dropped to record lows in January along with industrial production figures which contracted 1.8% for the month. This signals a weak start to 2009 after the US economy contracted 3.8% in the final quarter of 2008. President Obama released details of a $275 billion housing package which is an attempt to address the root of the financial crisis and prevent the rising number of foreclosures on American homes. An estimated 400,000 home owners lost their homes in the US last year. This comes in the same week as the $787 billion rescue package, yet market response remains uncertain as details and growth prospects are unclear. The Federal Reserve have also announced they expect unemployment to rise to over 8.5% and projected long-term interest rates at 2%. The FOMC minutes are released today along with the Philadelphia Fed and jobless claims figures.

Euro – European Markets

The Euro has strengthened this morning, gaining over 1% on the US Dollar to 1.26 after falling to its lowest rate since mid-November yesterday. The Euro-Sterling exchange rate is currently at 0.88 and the Euro has advanced on the Japanese Yen and New Zealand Dollar.

The Euro came under pressure yesterday as news of the deteriorating economic situation in Eastern Europe raised fears over the exposure of Western European banks. The Polish Zloty, Czech Koruna and Hungarian Forint have all reached multi-year lows against the Euro and major European banks warned of pending job cuts despite Societe Generale posting a fourth quarter profit. European equities gained for the first time in 8 days on the back of better than expected profits released from Nestle and BNP Paribas yesterday. The ZEW survey for Switzerland is out this morning and EMU purchasing manager indices for manufacturing and services are due tomorrow.

Other Currencies – Highlights

The Australian Dollar is under pressure this week amid news that Moody’s is to review the credit rating of the Australian Government. The Standard and Poor’s has previously claimed Australian banks are ‘well placed’ to withstand the downturn yet recent economic data from Australia has been worse than expected. The Bank of Japan left interest rates unchanged yesterday at 0.1% and the Yen fell to a 6 week low against the Dollar with the passing of the Housing Bill in the US Senate. Consumer Price index figures for Canada are due tomorrow.

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The Sterling-Dollar exchange rate has declined this morning after the release of MPC minutes which showed an 8-1 vote for a 0.5% reduction in the base rate. David Blanchflower was again the dissenting voice within the Bank as he argued the 1% reduction should be taken ‘without delay’. Global equities remain bearish as unease surrounds global recovery prospects and this is putting pressure on European and Asian exchange rates.

Pound Sterling – UK markets

The Sterling-US Dollar exchange rate declined sharply this morning with the release of the MPC minutes and is currently sitting at 1.41. The Pound is also down over 1% against the Australasian currencies and the current Euro exchange rate is 1.12.

Minutes from the February MPC meeting released this morning revealed an 8-1 vote for a 0.5% reduction in the base rate. The Bank has reduced interest rates from 5% to 1% in the last 5 months and is predicting the UK economy will contract 4% from mid 2008-mid 2009. This is a significant revision of the Bank’s November forecast and is indicative of the steep decline we have seen since the Lehman shocks in September 2008. Recovery prospects depend largely on global economic efforts, hence the focus on US equities and the Bank of England is now looking to more unconventional fiscal policy. The main concern of the MPC is stimulating credit flows and restoring business and consumer confidence. This morning, the Work Foundation has urged the Government to provide the same financial support for manufacturing as it has for banks. Manufacturing remains a crucial sector for employment, export and GDP and is under serious pressure as global export markets contract. Results of the CBI Trends Survey are also published today.

US Dollar – US Markets

The Dollar has strengthened sharply against the Pound and Euro this morning as negative economic data continues to pressure the European currencies. Against the Yen, the Dollar has climbed to 92.56 and it has weakened against the Australian and New Zealand currencies.

The $787 billion Federal Reserve rescue package was signed by President Obama yesterday, which gave a slight boost to the US Dollar as it was described as the ‘most sweeping package’ in economic history. However the tone of global equities remains bearish, as uncertainty surrounds future economic prospects. General Motors and Chrysler have each asked the government for further aid in addition to that already provided by the Federal Reserve. However further aid is conditional on their economic viability and the big three auto manufacturers have until the March 31 deadline to prove their worth. The price of oil has fallen to $41 a barrel on the back of uncertainty with regard to growth prospects. Housing statistics are out in the US today.

Euro – European Markets

The Euro is weaker against the US Dollar this morning, trading at 1.25 and has also declined against the Australasian currencies. The Euro has gained against the Yen and is up to 0.88 versus the Pound following the release of minutes from the February MPC meeting.

European stocks have fallen for the third day in a row along with Asian equities on the back of global unease regarding recovery prospects. Societe Generale, France’s third largest bank has posted a profit in the fourth quarter of 2008 despite losses in its investment unit and the French government has submitted details of a €6 billion plan to aid French auto manufacturers to the European Union. The Euro has also declined after Moody’s claimed recession in Eastern Europe would affect the major central European economies. Euro sentiment could weaken as recession deepens across the Eurozone. There is no major data out in the Eurozone today.

Other Currencies – Highlights

Asian equities have displayed negative trends for the third consecutive day as they are still suffering repercussions from Japan’s economic contraction and the global sense of unease. Japan went from being one of the best performing economies to one of the worst in the three months to December as the US asset bubble and cheap Yen were obliterated by the financial crisis. The Australian and New Zealand Dollars slumped against the Euro overnight, driven lower by concern in Eastern Europe. The Bank of Japan interest rate decision is due tomorrow.

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Trading is volatile this morning ahead of the Bank of England and ECB interest rate decisions due this afternoon. US unemployment figures have risen by over 500,000 in January alone and shares in Europe’s major banks have declined as Swiss Re and Deutsche Bank have reported massive profit losses for 2008.

Pound Sterling – UK markets

Sterling is trading at 1.44 against the US Dollar and 1.12 versus the Euro having strengthened ahead of the Bank of England interest rate decision. The Bank of England is expected to cut the base rate to a new historic low of 1% this afternoon. The MPC decision will be weighed against Britain’s plunging inflation rates, thousands of jobs losses and increasingly grim economic climate. The NISER predicted a -2.7% contraction for the UK economy and the IMF has claimed Britain will be one of the worst hit by the current recession. While significant monetary easing has been undertaken alongside rate reductions, in future the Bank will have to look to increasingly unconventional policy measures. Icelandic investment group Baugur has become the latest high profile victim of the credit crunch after filing for bankruptcy protection yesterday. Baugur owns shares in high street giants Hamley’s, Iceland and House of Fraser and is expected to fold with debts of over £1 billion. The rate decision is to be announced at noon and is likely to be a source of volatility for the Pound.

US Dollar – US Markets

The Dollar has remained largely unchanged overnight, down against the Pound and Australasian currencies this morning. Equities suffered yesterday after it was revealed the US private sector slashed 522,000 jobs in January. Today a series of soft data is released in the US but markets are likely to be dominated by events in the UK and Europe. The US unemployment rate and non-farm pay roll figures are out tomorrow.

Euro – European Markets

The Euro is down to 1.28 versus the US Dollar and 0.88 against the Pound as current exchange rates reflect uncertainty surrounding the ECB decision. Last month ECB President Trichet signalled rates would not be cut further until March although falling inflation and rising unemployment in the Eurozone are mounting pressure on the ECB to act. EMU retail sales announced yesterday have fallen flat, showing a -1.6% contraction for the year to December. Deutsche bank has suffered its first annual loss, posting a €3.9 billion write down for 2008 and Swiss Re has gained a £1.8 billion cash injection from investor Warren Buffett. This news led to a negative day for European equities yesterday from which they have still not recovered. Norway’s national bank has cut interest rates to 2.5%. The ECB decision is this afternoon to be followed by a speech from President Trichet.

Other Currencies – Highlights

The Australasian currencies suffered overnight as worse than expected employment figures in the US triggered a round of panic selling. The New Zealand unemployment rate has risen to 4.6% as global recession is taking its toll on the minor economies through a downturn in tourism, trade and international investment. A monetary policy statement from the Reserve Bank of Australia is due tomorrow and this is likely to include scope for further interest rate reductions and government cash injections. Qantas shares fell 18% in trading yesterday as the outlook for tourism figures remained bleak.

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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 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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