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The UK unemployment rate has posted its largest quarterly increase, climbing to 7.6% in the three months to May. Consumer prices have fallen in the eurozone for the first time and international foreign exchange rates are likely to be subject to movements in US markets today, with consumer inflation, industrial production and the FOMC minutes due.

Pound Sterling – UK Markets

Sterling foreign exchange rates are mixed this morning, climbing against the US, Canadian dollar and Brazilian real while declining against its European currency partners. The pound is currently valued at 1.63 against the US dollar and 1.16 against the euro.

UK unemployment has climbed to 2.38 million after the biggest quarterly increase on record. ONS statistics show unemployment rose by 281,000 in the three months until May, taking the official rate to 7.6% which is the highest in 10 years. Unemployment in both the US and eurozone is running at 9.5%. Inflation figures yesterday saw the pound strengthen as they added to the view that the Bank of England has room to leave interest rates on hold. There is no further data in the UK today.

US Dollar – US Markets

The US dollar has dropped sharply against the euro this morning, falling 0.6% to 0.71 after the publication of euro inflation figures. The greenback has also weakened against its international currency partners as investors diversify following the equity rally yesterday.

Today US markets are packed with data that will provide a current picture of the US economy and likely affect international foreign exchange rates. US consumer price inflation is due, along with industrial production figures which are expected to decline by -0.9%. This is given the lower number of auto assemblies following the massive downturn in GM and the Chrysler bankruptcy. The FOMC minutes are also due today and this will provide an insight into the Fed’s view of the economy at present.

Euro – European Markets

Euro foreign exchange rates have climbed this morning, breaking through the 1.40 level against the US dollar and rising to 0.85 against the pound. The euro is also stronger against its European currency partners as investors seek an alternative reserve with important US figures due this afternoon.

Consumer prices in the eurozone have fallen for the first time in June, dropping 0.1% from the previous month due to a decline in energy prices and reduced household spending. Despite the falling inflation Eurostat figures show none of the Eastern European nations set to join the eurozone have inflation rates low enough to do so. The maximum current rate for joining the eurozone is 2.6% at present. There is no further data in the eurozone today.

Other Currencies – Highlights

The Bank of Japan has left interest rates unchanged at 0.1% but voted to extend emergency credit programmes until the end of the year to help businesses ride out the recession. Governor Shirakawa said the financial conditions are improving in Japan although confidence remains low and the economy is due to shrink 3.4% this year. The yen has weakened overnight as global confidence improves.

China’s GDP statistics for quarter 2 are out this afternoon. As a key market for commodities and exports, continuing Chinese growth is integral to global economic recovery. Foreign direct investment in China has fallen for the ninth month straight as companies trim budgets to weather the recession.

Both sterling and euro currency rates are at their highest level this year against the US dollar as market sentiment continues to improve following news the pace of recession is moderating. This is despite news that General Motors, once the world’s largest auto manufacturer, is to declare bankruptcy later in the day. This week brings interest rate decisions from the Bank of England, European Central Bank and Australian Reserve Bank.

Pound Sterling – UK markets

The sterling currency rate weakened against the euro on Friday, closing the day at 1.14. In early trading this morning, the pound has risen to 1.15 against the euro and 1.64 against the US dollar. This is the highest level in 2009 for sterling, fuelled by the improvement in global confidence.

Sterling currency rates have climbed across the board this morning, with the pound reaching some of the best currency rates in 2009 against its major currency partners. This positive sentiment is based on the view that decline in the UK economy may be nearing a bottom. The UK PMI for manufacturing released this morning shows an improvement to 45.4, climbing from 43.1 towards 50 which indicates a positive result. The Bank of England’s MPC will meet later this week for an interest rate decision. With rates currently at a record low of 0.5%, no change is expected and any further activity is expected to be based on quantitative easing.

US Dollar – US Markets

The dollar has declined against most of its international currency partners this morning, trading over 1.3% lower against the pound and 0.6% lower against the euro. US currency rates have also sunk over 1.4% against the Australian and New Zealand dollars.

Currency trends for the US dollar are bearish at present and are expected to remain so over the coming month. Weakness in the auto sector is weighing on dollar sentiment and levels of QE in the US are keeping investors uncertain. General Motors, once a symbol of American consumerism and the world’s biggest company, is to declare bankruptcy later in the day. GM is one of the most high profile casualties of the credit crunch and is expected to undergo a short “surgical” bankruptcy with a new “leaner” company to be launched in 60 days. Personal income and consumption figures are due in the US today and these often provide a degree of market volatility as they are closely related to retail sales and consumer confidence.

Euro – European Markets

The euro has also benefitted from a rise in risk appetite internationally, gaining over 0.5% on the dollar to trade at some of the best currency rates this year. The euro is currently valued at 1.42 against the greenback, 0.86 against the pound and 134 against the yen.

After touching on the best currency rates in 2009 against the US dollar on Friday, the euro has continued to gain this morning on the back of improved risk appetite. This is despite the bankruptcy of General Motors which is expected to cost up to 20,000 European jobs. The PMI for manufacturing in both Germany and the eurozone have continued to climb this month, showing a modest improvement in the European manufacturing sector. The EMU unemployment rate is released tomorrow.

Other Currencies – Highlights

The Australian dollar has surged against the pound and US dollar overnight as improved risk appetite and commodity prices support currency rates for the higher yielding currencies. Numbers of new building permits and the RBA interest rate decision for June are due overnight and this could induce some currency volatility for the Aussie dollar.

The Canadian dollar has also gained overnight on the back of more positive market sentiment, climbing nearly one percent on the US currency. Figures released in China overnight indicated a modest expansion in manufacturing activity and this has boosted market sentiment in North America. Canadian GDP figures and industrial product prices are due this afternoon.

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 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.

Consumer prices in the eurozone slowed to a record low year-on-year increase of 0.6% in March, down from a 1.2% year on year increase in February, according to the Flash estimate released by Eurostat.

Eurozone inflation rate has never been this slow 1996 when records began. This is just the latest reason for the ECB to cut interest rates on the next monetary policy meeting on Thursday.

Pound Sterling – UK Markets

The UK economy will contract 3.7% in 2009 and output will also decline mildly in 2010, the Organisation for Economic Cooperation and Development has predicted.

The OECD said a recovery would start in 2010, with the weaker pound, a marginally improved global environment and the UK’s various policy measures helping lift the economy from a recession that started in mid-2008. However, the organisation said the economy would still contract 0.2% in 2010.

If right, the UK economy is headed for its deepest downturn since World War II. The economy hasn’t contracted more than 2.1% since records began in 1949. Only once – in 1980 and 1981 – has output fallen two years running.

The OECD’s latest forecasts represent a major downward revision for the UK economy. In its previous report in November, the OECD saw the UK economy contracting 1.0% in 2009 and growing 0.7% in 2010.

US Dollar – US Markets

Ongoing contraction is expected in the Institute for Supply Management’s Chicago Manufacturing report today, but economists suggest that the pace of deterioration in the sector could be slowing. The headline ISM Chicago PMI index is expected to rise to 34.4 from 34.2.

Euro – European Markets

French debt rose in the fourth quarter of last year to €1.33 billion, or 68% of GDP, up from the 66.1% of GDP it had reached in the previous three months, national statistics office Insee has said.

Last year, the budget deficit of the eurozone’s second-largest economy rose to 3.4% of GDP, up from the 2.7% of GDP the previous year, Insee said. France’s public accounts are feeling the pain of a worse than expected downturn, with GDP forecast to drop by at least 1.5% this year.

A report from national statistics office Istat shows that Italian retail sales rose unexpectedly in January. Retail sales rose an unadjusted 0.7% on the year, rebounding after having fallen for three consecutive months. Economists had anticipated a 2.2% drop on the year and a 0.2% drop on the month.

Germany’s unemployment rate rose to 8.6% in March as the global economic downturn continued to tighten its grip on Europe’s largest economy. In seasonally adjusted terms, the rate rose to 8.1% from 8%, official figures also showed. This equates to 3.4 million people, an increase of 69,000. Unemployment rates have been rising across Europe, with the Spanish jobless rate the highest at more than 14%.

Other Currencies – Highlights

Japan’s unemployment rate has risen to a three-year high as companies continue to slash jobs. The jobless rate rose to 4.4% in February, from 4.1% in the previous month, the government has said.

Separate data showed that consumer spending last month fell by 3.5% from a year earlier. Prime Minister Taro Aso is planning to announce a new package of stimulus spending to try to revive the world’s second-biggest economy.

The fall in UK house prices gathered pace in January, according to the government’s own house price index. Prices were 11.5% lower than in January 2008, an increase in the 10.2% annual fall seen in December. The price of the average UK property is now down to £195,724, a fall of £26,034 in the past year. Prices have been falling fastest in Northern Ireland, down 14.3%, and are still highest in London, where the average home costs £301,383.

Pound Sterling – UK markets

Yesterday’s confirmation that Barclays is in talks over the sale of its exchange-traded fund business iShares helped the pound make some gains yesterday. However, both the Euro and the US Dollar have now clawed back their early losses with Sterling now approaching six-week lows against the Euro as a five-day run of stock market gains faltered.

Elsewhere, figures show that online shopping is bucking the downward trend on the UK High Street, as latest figures show the ‘e-tail’ sector made a 13% annual sales increase in February. Despite the annual increase, online shopping figures fell in February by 11% from the month before, online retail research group IMRG Capgemini said.

US Dollar – US Markets

Federal Reserve Chairman Ben Bernanke and other policy makers may have to ramp up their purchases of mortgage securities and other assets after the economy and job market deteriorated further since they last met.

Analysts say that the Federal Open Market Committee need to redouble their efforts after the central bank’s balance sheet shrank 17 percent from a $2.3trn peak in December. This retreat came even as Bernanke acknowledged the chance that the unemployment rate will exceed 10 percent for the first time in 25 years.

The US Dollar has remained under pressure following gloomy economic data including the Empire State manufacturing survey, which fell 4 points in March to -38.2, a new record low. Meanwhile, the housing market index from the National Association of Home Builders (ranked on a scale of 1-100) was unchanged at 9, from January’s all-time low of 8.

Euro – European Markets

Appetite for riskier trades boosted demand for the Euro, with the US Dollar falling to a five-week low against the single currency. Hopes that money from the International Monetary Fund will be used to help ailing Central and Eastern European economies also increased demand for the Euro, analysts claimed.

The Centre for European Economic Research German economic sentiment survey will be released today and is expected to fall to -90 from -86.2 in February. Meanwhile, economic sentiment is seen at -8, down from -5.8 in the prior month.

Meanwhile, Spain’s National Statistics Institute have released a report that shows Spanish home sales fell 39% on the year in January, pointing to a deepening correction for Spain’s once-flourishing home-building industry. Sales had fallen by 26% in December and 36% in November.

Other Currencies – Highlights

Following the release of minutes of the recently concluded Reserve Bank of Australia meeting the Australian Dollar has fallen to a four-day low against the Euro.

The minutes have raised hopes that the RBA will cut interest rates as early as April to help the economy combat recession – helping to lift market sentiment despite lingering doubts about the global economic outlook.

US data released yesterday showed better than expected retail figures for February, and Bank of America announced that they expect to operate profitably in 2009. This led to a surge in equity markets and a rise in risk appetite for investors with the MSCI world index making its biggest rally since November. Japan and China also signalled an increase in efforts to boost growth leading Asian and European equities higher.

Pound Sterling – UK markets

The Pound has risen this morning on the back of improved market confidence but remains trading at low levels internationally. Sterling is currently struggling to find support above 1.4 on the Dollar and remains weak against the Euro.

Yesterday the Bank of England declined to provide ‘sector specific support’ to the ailing automobile industry and this led the Pound to fall against the Euro. This morning the FSA has announced the introduction of more draconian regulations to prevent risky investments being undertaken by banks. With an absence of major data in the UK, Sterling exchange rates are subject to international risk trends and positive retail sales figures in the US yesterday led Sterling to strengthen against its major currency partners. Next Wednesday brings the UK unemployment rate and this will be a source of volatility for the Pound. There is no data in the UK today.

US Dollar – US Markets

The Dollar has lost ground this morning against its international currency partners as better than expected retail sales figures have boosted market sentiment. The Dollar is down against the Pound, Euro, Canadian, New Zealand and Australian Dollars.

US retail sales showed a 0.7% increase in February, a stronger gain than expected revealing an underlying positive trend in the US economy. This news, in combination with the announcement from Bank of America that they expect to make a profit in 2009, sent equities surging yesterday and redistributed funds resulting in better exchange rates for many of the higher yielding currencies against the US Dollar. Also in the US, Bernie Madoff has been jailed this morning for his $50 billion fraud after pleading guilty to all 11 charges. The US trade balance is released this afternoon.

Euro – European Markets

The Euro is holding strength this morning, gaining on the Yen and US Dollar while also trading at favourable rates against the Pound, Australian and Kiwi Dollars.

Despite the release of negative figures from Germany, the single currency gained on the Pound throughout yesterday’s trading. German industrial production fell by -7.5% in January, revising annual rates to -19.3%. This is indicative of the V shaped downturn the Eurozone is experiencing which is affecting Germany’s heavily export orientated economy. Germany is the largest economy in the EU and fifth largest in the world by levels of GDP. Economists suggest the decline in consumer confidence and demand could mean economic policy is to play an increasing role in global recovery. In the Eurozone, this could lead to a redistribution of production to some of the EU’s smaller economies. EMU retail sales are due today.

Other Currencies – Highlights

Asian equities have surged overnight and the MSCI index held its biggest rally since November as Japan and China both announced a broadening of rescue efforts. Speaking from a press conference in Beijing, Chinese Premier Wen Jiabao defended China’s economic policies and announced they expect world growth to return to normal by 2010. The government growth target this year is 8%. In November China announced a 4 trillion yuan (£420 billion) rescue package and international economist suggest years of high growth and a tightly managed budget will support the Chinese economy throughout 2009.

The Japanese Prime Minister has ordered a third government rescue package as the Japanese economy suffers due to the recent strength of the Yen. Japanese consumer confidence and industrial production figures are due today.

Markets are anticipating the release of interest rate decisions from the Bank of England and ECB this afternoon. Both are expected to make a 0.5% reduction to the current base rate with quantitative easing looking likely for the UK economy in future. It is unclear as yet how this will affect the value of Sterling. Some economists predict added uncertainty will damage the Pound, while others maintain an end to rate reductions could provide support for Sterling.

Pound Sterling – UK markets

The Pound has strengthened this morning against its major currency partners, trading at 1.41 against the Dollar and 1.12 against the Euro. The Pound is also up against the safe haven Yen and Swiss Franc as investors gain limited appetite for risk in the run up to the Bank of England interest rate decision.

The MPC is widely expected to reduce the base interest rate to 0.5% and this is priced into the value of Sterling this morning. Having exhausted the interest rate option, the Bank is now expected to introduce quantitative easing to increase the supply of money to the UK economy. Job cuts and deepening recession are threatening to drag inflation below the Bank’s 2% target and the Bank is looking for more unconventional methods of increasing money supply. Quantitative easing will see the Bank buy millions of Pounds worth of assets from ailing banks in the hope that this will stimulate the flow of credit. PM Brown addressed the US Congress yesterday urging the world’s largest economy to lead the way out of the credit crisis. Brown called for an end to economic protectionism, a greening of new industry and an end to offshore tax havens. This was met with widespread Democratic support. House prices have declined another -2.3% in February and the Bank of England decision is due at noon.

US Dollar – US Markets

The Dollar remains strong this morning, gaining on the Euro and holding steady at 0.70 versus the Pound. The Euro and Pound exchange rates are capped by interest rate decisions later in the day and weak employment figures have dampened positive sentiment in the US.

The US economy shed 697,000 private sector jobs in the month of February and the Fed’s Beige Book showed further economic deterioration in the first two months of 2009. This news came accompanied by a warning from Timothy Geithner who stated the US slump is deepening with little hope of recovery in the near future. Geithner and Bernanke, the primary spokesmen for the Federal Reserve, have argued stimulation of bank loans is crucial to recovery and neither will rule out further cash injections which remain critical to the health of some financial institutions. US banks continue to be battered by both market shocks and deepening recession which has effectively frozen consumer and interbank lending. It is looking increasingly likely the US government will have to add to the $787 billion rescue package already approved. Moody’s has recently warned JP Morgan, Wells Fargo and Bank of America may have their credit ratings downgraded as a result of the recession. Tomorrow sees a variety of important data out in the US, from average earnings to the unemployment rate.

Euro – European Markets
The Euro is broadly weaker this morning, down against the traditional safe havens as markets view the ECB as behind the curve when it comes to fiscal policy. The Euro has gained on the higher yielding Australian and New Zealand Dollars and is likely to remain subject to volatility in the lead up to the ECB decision.

A rate reduction of 0.5% is widely expected today from the ECB. However the Bank is facing mounting criticism that it has been slow and ill-equipped to deal with financial crisis in the Eurozone. GDP and business confidence in European nations has plunged at record rates and thus far the ECB has been reluctant to take decisive policy action. This has put the ECB at odds with central banks around the world although their policy response has been inhibited by the diversity of the Eurozone’s constituent nations. German retail sales have declined -0.6% for the month of January, taking annual rates to -1.3% on the year. EMU GDP figures are due this morning to be followed by the ECB interest rate decision and a speech from ECB President Trichet.

Other Currencies – Highlights

Chinese Premier Wen Jiabao has announced a $585 billion stimulus package for China amid the most difficult economic year China has had this century. The Premier also declared annual growth targets of 8% and the communist party is reported to fear social instability if the economic situation continues to deteriorate. This degree of support bolstered Asian equities and the Australian Dollar received a boost from renewed optimism over the Chinese economy.

Stock markets have recovered from their bout of extreme risk aversion with Sterling and the Euro trimming losses against the US Dollar overnight. Ben Bernanke warned yesterday that the US banking sector is yet to achieve stability and interest rate decision are due from the ECB and Bank of England tomorrow. The prospect of quantitative easing and more unconventional policy is fuelling investor uncertainty which is impacting on currency exchange rates.

Pound Sterling – UK markets

The Pound-US Dollar exchange rate has recovered this morning to 1.40 after sinking to 1.39 following market shocks yesterday. The Pound has also risen to 1.12 on the Euro and has gained against the Australian Dollar and Yen as investors regain some of their appetite for risk.

Consumer confidence in the UK increased by 2 points in February according to a survey by economic analyst Nationwide. This is the first positive movement since October 2008 as falling prices across all areas of the economy are providing good value for money. The CBI business organisation has also reported that while retail sales fell in February, the rate of decline had slowed. Economists are currently predicting an upturn in economic sentiment to begin in the second half of 2009. The credit crunch has reached the broadcasting sector with news this morning that ITV is set to slash 600 jobs. The broadcaster has been hit by reduced advertising revenue and is seeking to trim £65 billion from its programming budget after reporting a 41% drop in profits last year. The Bank of England interest rate decision is due tomorrow and the government is set to announce a variety of initiatives designed to stimulate the UK economy over the coming days.

US Dollar – US Markets

Results are mixed for the US Dollar this morning as a slight increase in risk appetite redistributes funds amongst the higher yielding currencies. The Dollar is up over 1% on the Yen and has gained against the Euro and Swiss Franc while suffering declines against the Pound, Canadian and New Zealand Dollar.

The MSCI World Index gained ground yesterday for the first time in six days following speculation that the US government would increase efforts to improve the economy. European and Asian equities shadowed Wall Street’s gains and currency exchange rates received a boost on the back of improved confidence. However these gains were tempered Ben Bernanke’s warning that the US banking system still had not stabilised and AIG may need to find another source of capital. The viability of AIG is regarded as crucial to the health of the entire financial system due to the sheer scope of its investments. As such, the US government is committed to its success and may have to provide further funds. Employment change figures and the Fed’s beige book are due out tomorrow.

Euro – European Markets

The Euro is broadly weaker this morning against it major currency partners with the exception of the Japanese Yen and the Swiss Franc. The Euro-Sterling exchange rate is currently at 0.89 while the Euro-US Dollar rate is 1.25.

European equities have experienced a mild recovery overnight with the European Dow Jones rebounding 1.5% from its lowest level since 1996. France Telecom, the third biggest phone company in Europe has announced a 35% profit loss for 2008 and European General Motors has asked for a further €3.3 billion in government aid as the recession continues to affect industry giants throughout Europe. The automobile industry is a major casualty of the credit crunch as consumers hold off spending on big ticket items. General Motors in the US has received $30 billion in government aid and is still in a precarious financial position. The German service sector PMI has declined to 41.3 in February while PMI in the Eurozone fell to 39.2 from 42.2 in January. This is a record decline as the Eurozone slashed more jobs than ever this February. There is no further data today with EMU GDP and the ECB interest rate decision due tomorrow.

Other Currencies – Highlights

The Australian Dollar maintained its strength against the US Dollar overnight after the Reserve Bank opted to leave interest rates unchanged at 3.25%. Statistics released this morning show Australian GDP contracted -0.5% in the fourth quarter of 2008 taking annual growth to 0.3%.

The Canadian Dollar touched on a three month low against the US Dollar after the Bank of Canada cut interest rates by 0.5% yesterday. The Central Bank reduced the cost of borrowing to 0.5%, the lowest level on record following a sharp contraction in fourth quarter GDP. The Bank also signalled that more unconventional policy could be employed in future raising speculation of quantitative easing for the Canadian economy.

Risk trends remain the primary determinant of currency exchange rates this morning as the US cash injection for AIG yesterday renewed fears of institutional failure. Deemed too big to fail by the US authorities, AIG has received a further $30 billion in Federal funding and is now 77.9% taxpayer owned. Markets plummeted around the world on the back of this news sending the Pound and Euro to the bottom end of their trading ranges versus the US Dollar and Yen.

Pound Sterling – UK markets

The Pound has recovered to 1.40 against the US Dollar this morning after hitting 1.39 in the wake of the HSBC announcement that they would be seeking to raise cash to offset profit losses. The Pound is also down to 1.11 against the Euro and has declined 1.7% against the Australian Dollar as the Federal bail out of AIG rattled investor confidence overnight.

The UK FTSE closed on a six year low yesterday after news of a £12.5 billion fundraising drive at HSBC triggered investor fears over further institutional failure. Northern Rock posted a £1.4 billion loss yesterday for 2008 although the bank claims to be ahead of target in paying back the government after being nationalised in February 2008. The construction sector PMI released this morning shows a figure of 27.8 indicating a decline in activity in the month of February. There is unease surrounding Sterling at present as the government moves into a new era of fiscal policy with the approach of quantitative easing. The Bank of England meets on Thursday and economists are predicting a final 0.5% reduction to the base rate.

US Dollar – US Markets

The Dollar spiked overnight against the Euro and Pound as the Federal bail out of AIG heightened investor nerves. However the higher yielding currencies have rebounded this morning with the Euro and Pound clawing back ground to trade at 0.79 and 0.70 respectively. The US Dollar has gained on the Japanese Yen.

Stock and equity markets went into a tailspin yesterday after American insurance giant AIG posted a $61.7 billion profit loss, the largest in US corporate history. The US government provided a further $30 billion of financial aid, taking the amount of taxpayer funds received by the corporation to $150 billion and taxpayer ownership to 77.9%. The Dow Jones and Standard and Poor’s plummeted 4.2% and 4.7% respectively and market declines were felt around the world from Tokyo to London. Treasury Secretary Timothy Geithner will attempt to restore market confidence in a speech later today.

Euro – European Markets

The Euro is climbing against the Dollar and Pound this morning as markets recover some of the ground lost overnight. The Euro has gained 0.6% on the Dollar to trade at 1.26 and nearly 1% on the Yen to trade at 123.76. Against the Pound the Euro remains in the vicinity of 0.89.

Manufacturing activity in the Eurozone fell to the lowest level in 12 years, figures released yesterday show. Despite better than expected figures in January, results for February weighed on the Euro exchange rate and this decline is likely to be reflected in first quarter GDP statistics. Central and Eastern European banks are to be on the receiving end of a €24.5 billion bail out from the World Bank, European Investment Bank and European Bank for Reconstruction and Development. Developing European economies have been hit particularly hard by the credit crunch and the package is a co-ordinated attempt at refinancing and encouraging lending in the region. Austria has seen the cost of its insurance rocket after Moody’s reported Austrian banks are the most exposed to losses in Eastern Europe. Speculation over the ECB meeting could impact on the Euro this week and the ECB meets on Thursday to announce their interest rate decision.

Other Currencies – Highlights

Japanese stocks traded close to 26 year lows on Tuesday after persistent market fears over the further failure of financial institutions. AIG and HSBC have been in the spotlight recently and questions over their financial health sent stock and equity markets to new lows.

Canadian GDP for the fourth quarter of 2008 declined 4.3%, the sharpest quarterly decline since 1991 and this sent the Canadian Dollar lower against the US Dollar overnight. The CAD has recovered losses this morning, currently trading at 1.28 to the US Dollar ahead of the Bank of Canada interest rate decision today.

The Reserve Bank of Australia has voted to leave the official cash rate unchanged at 3.25% signalling an end to the aggressive rate cuts that began in September 2008. This strengthened the Aussie Dollar nearly 2% on the Pound overnight as the Australian government is regarded as ahead of the game when it comes to fiscal policy.

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