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The single currency has extended its rally against the pound this morning, gaining support from the release of the German consumer price index and consumer confidence figures. International risk appetite took a hit yesterday as US durable goods orders came in more modest than expected, and currency exchange rates for the yen strengthened in the run up to Japan’s general election.

Pound Sterling – UK Markets

Sterling currency exchange rates continue to fall this morning despite positive housing figures from Nationwide, with the pound falling against its major currency partners. Sterling is currently valued at 1.62 against the US dollar and 1.13 against the euro.

Further losses for the pound yesterday put sterling’s decline as the longest since January against the single currency. The price of UK bonds fell to a record low and the German IFO business climate improved, pushing the euro even higher against sterling. A correction is expected for the pound at some stage, though when this will occur is difficult to say. Nationwide figures show UK house prices gained 1.6% in August, climbing for the fourth consecutive month, while total business investment is down -10% for the second quarter.

US Dollar – US Markets

US currency exchange rates gained over 1% against the pound yesterday after downbeat US figures limited risk appetite. This morning the US dollar is trading at 0.70 against the euro and 0.61 against the pound, while climbing against its European currency partners.

Markets were underwhelmed yesterday by durable goods orders in the US, which rose 4.9% in July, slightly lower than market expectations. However these figures support the idea that the US is recovering across a wide range of sectors and economists are predicting the world’s largest economy will return to growth in the third quarter. GDP figures for the second quarter and initial jobless claims will be a source of currency volatility today.

Euro – European Markets

Currency exchange rates for the euro remain bullish, with the single currency posting its longest rally against the pound since January. The euro has climbed to 0.87 against the pound and dipped slightly to 1.42 against the US dollar.

German data continues to exceed market expectations with the consumer price index rising 0.3% in August. Positive IFO figures triggered a euro rally yesterday and economists are expecting the German economy to support sustained growth by mid 2010. German consumer confidence this morning rose to a 15-month high and EMU consumer, economic and industrial confidence figures are due tomorrow.

Other Currencies – Highlights

A rise in risk aversion following modest US data limited currency exchange rates for the Australian dollar yesterday, sending the Aussie lower against its major currency partners. A 3.3% rise in Australian business investment in the second quarter has added to the view that Australia is recovering, though the Australian and New Zealand currencies remains particularly susceptible to global risk appetite.

Currency exchange rates for the Japanese yen have climbed this morning, due to increased demand for the safe haven while risk appetite remains weak. Unemployment has risen to 5.5% Japan, while consumer prices are declining and export levels have fallen for ten consecutive months. The Japanese election is due soon and the yen could remain strong in the run up to this.

The UK economy contracted -1.9% in the first quarter of 2009, more than economists expected with record declines in the manufacturing and service sectors. This news has sent the pound plunging against the dollar and euro as investors also remain wary of record levels of government borrowing.

Pound Sterling – UK Markets

Sterling is sliding this morning against its major currency partners with the release of first quarter GDP figures showing the UK economy contracted significantly in early 2009. This morning the pound has slid over 1% on the euro, yen and New Zealand dollar, and 0.4% against the US dollar.

ONS statistics show the UK economy contracted -1.9% in the first quarter of 2009. This follows a -1.6% contraction in the previous quarter and was substantially higher than the -1.5% predicted by most economists. This takes the annual growth rate to -4.1%, a contraction significantly larger than the 3% predicted by Alistair Darling earlier in the week. Retail sales figures, a key indicator of consumer spending, rose 0.3% in March. Sterling is likely to continue its bearish run today as these figures, along with the 12.4% budget deficit, play on the minds of investors. Credit agency Moody’s has also expressed concern over the levels of government borrowing, which is set to reach GBP175 billion this year, prompting concerns the UK may lose its AAA credit rating. There is no further data in the UK today.

US Dollar – US Markets

The dollar is weaker across the board this morning, down 0.9% against the euro and yen, gaining only on the pound in terms of the major currencies.

The growing perception of ‘green shoots’ emerging in the US economy this week has supported a series of rallies in markets, boosting some of the higher yielding currencies at the expense of the dollar. Solid corporate earnings from Bank of America and Citigroup and increased funding from G20 nations have contributed to the view that the worst of recession may be easing. These rallies however, remain capped by bouts of negative data, with news that home sales fell 3% in March renewing concerns over the property market. The Federal Reserve’s methodology for stress testing banks is released today with results of the tests due on May 4. Market opinion currently is that the purging of toxic assets is far from over and the extent of credit write downs could damage positive sentiment in weeks to come. Durable goods orders and new home sales are out today.

Euro – European Markets

The euro has gained across the board this morning, strengthening to test 1.32 against the US dollar and gaining over 1.3% on the pound. The single currency has dipped slightly against the yen, Swedish kronor and Swiss franc.

The euro has benefitted from a glut of negative data released in the UK this week and rallies in equities supporting slightly higher risk appetite. Economic data yesterday showing the pace of recession in the Eurozone easing also boosted confidence and the euro has moved to consolidate on this support. This morning, figures show the German IFO business climate and expectations rose to 83.7 and 83.9 respectively, which bode well for the rest of the region. There is no further data from the Eurozone today.

Other Currencies – Highlights

The Australian and Kiwi dollars have capped off a week of declines against the yen on concerns that recession will reduce demand for the export products of the two nations. Next week markets are likely to focus on the Reserve Bank of New Zealand’s interest rate decision where a 0.5% reduction is expected, and the National Bank of Australia’s business confidence survey.

The euro has risen against the US dollar this morning with economic news from the eurozone showing the pace of recession easing in the last month. Yesterday market focus was on the pound with the UK budget and 6.7% unemployment rate causing a dip in sterling exchange rates. However this morning sterling has recovered, finding support above 1.45 on the dollar and 1.11 on the euro.

Pound Sterling – UK Markets

The pound dipped to 0.90 versus the euro yesterday after the announcement of “eye watering” government debt in the UK rattled markets. Sterling lost ground the euro and dollar throughout the day but appears to have been given the benefit of the doubt this morning, maintaining support above 1.45 and 1.11 on the dollar and euro respectively.

The UK budget announced yesterday has been subject to in-depth economic analysis and will continue to do so over the coming days. Among the headline grabbers was Darling’s top tax rate of 50% and predicted growth contraction of 3-3.5% for 2009. Higher tax levels raised the issue of competitiveness internationally and prompted speculation that top investors would keep their money elsewhere. The government also confirmed the view that a weak pound in the short term will give export markets a much needed boost. The budget deficit, predicted to reach 12% of GDP, put gilt prices under pressure and sent Sterling exchange rates lower. Unemployment, the housing market, auto sales and the ‘greening’ of new industry also took precedence in the new budget. Bank of England minutes released yesterday showed the MPC unanimously voted to maintain current interest rates and quantitative easing levels. To cap off a big week in the UK, GDP figures and retail sales are due tomorrow.

US Dollar – US Markets

The dollar has weakened this morning, down over 0.5% against the pound, Australian and Kiwi dollars as positive news from the Eurozone has revitalised investor confidence. The dollar is currently in the vicinity of 0.68 against the pound, 0.76 against the euro and 98 against the yen.

Renewed concern over the banking sector caused a drop in equities late in the day yesterday as markets continue to oscillate between positive and negative territory depending on the latest set of data released. News that Morgan Stanley operated less profitably than expected, combined with the IMF report that contradicted UK growth predictions caused a plunge in risk appetite but markets have rallied this morning on the back of positive news from the eurozone. Initial and existing jobless claims, as well as new home sales for March are due in the US today

Euro – European Markets

The euro has rallied this morning, boosted by a flight from sterling following the announcement of the UK budget and on the back of economic data showing recession easing in the eurozone. The euro is currently trading at 1.30 against the dollar and is up to 0.89 against the pound.

The German purchasing manager index out this morning has shown decline at the slowest rate in 5 months in both the manufacturing and service sectors. Industrial new orders for the eurozone also dropped less than expected and the EMU current account came in a EUR-8.1 billion. In addition to the news that Credit Suisse operated profitably for the first quarter of 2009 and French economic sentiment rose for the second consecutive month, this has supported the euro and moderated market opinion that the eurozone is becoming more entrenched in recession. The Swiss ZEW survey is due later in the day with Germany’s IFO business climate and expectations survey due tomorrow.

Other Currencies – Highlights

The Australian dollar continue to tread familiar ranges against the dollar and euro but spiked against the pound overnight as sterling was battered by low growth predictions and high budget deficits from the UK budget. Core inflation in Australia remained relatively high and economists predict the central bank is nearing the end of its interest rate reductions. Poor results for Morgan Stanley sent the New Zealand dollar lower as risk appetite diminished and comments from New Zealand finance minister Bill English, that New Zealand may be in its sixth quarter of recession also hurt the Kiwi currency. The Australian and New Zealand dollars are trading in the vicinity of 2.04 and 2.59 respectively.

Foreign exchange markets will focus on sterling today with the annual budget released in the UK. Equity markets rallied overnight on the back of comments from US Treasury Secretary Geithner. This fuelled a bounce in currency exchange rates that failed to include the euro and illustrated the pressure weighing on the euro at present.

Pound Sterling – UK Markets

The pound has weakened this morning against most of its international currency partners in the run up to the budget released today. The pound is trading in the vicinity of 1.45 against the US dollar and is down 0.5% against the euro with further exchange rate volatility likely throughout the day.

This morning’s budget is expected to be the most negative in a generation predicting a 3-3.5% growth contraction for 2009 and a deficit climbing to 12% of GDP. The government is also expected to announce plans for spending cuts and rising tax from 2011 along with moves to revitalise the property market and create thousands of new jobs in the UK. Minutes from the last Bank of England meeting also released this morning are likely to have little affect on markets as it remains too early to asses the effects of quantitative easing. The ILO unemployment rate has risen to 6.7% in the three months to February and public sector borrowing has increased to GBP19.1 billion, significantly ahead of market expectations. Also this morning, HM Revenue and Customs has announced a 40% jump in home sales for March. The budget is released at 12:30.

US Dollar – US Markets

The dollar has gained against the pound and euro this morning as uncertainty over the UK budget and fallout from the IMF report are weighing on the major currencies. The dollar is trading in the region of 0.68 versus the Pound and 0.77 versus the euro and has gained on the Canadian, Australian and New Zealand currencies.

A speech from Treasury Secretary Geithner’s yesterday led markets to a brief rally as he reassured investors of bank balance sheets. Equity markets and currency exchange rates are largely determined by the prevailing mood regarding the banking sector at present as this determines international appetite for risk. The USD-GBP exchange rate will likely be affected by the UK budget released today and we could see a weakening of the pound against the dollar. US mortgage applications and the housing price index for February are released later in the day.

Euro – European Markets

The euro continues its bearish run of the currency markets this morning, trapped below 1.3 against the US dollar and 0.89 against the pound. The euro has also declined against its Asian currency partners as details of an IMF report predict a long and entrenched recession for emerging European nations.

Positive news yesterday came in the form of the German ZEW economic survey which showed a surprise rise in confidence from -3.5 to 13. However, the fact that the euro failed to fully capitalise on this speaks volumes about market perception surrounding the Eurozone at present. Continued uncertainty from the ECB and details of the IMF financial stability report are weighing on the euro. The IMF forecast yesterday that European banks could face more substantial write downs and require greater capitalization than US banks. The IMF also expects a net investment loss to Eastern Europe with little hope of recovery in 2010 and 2011. There is little of note in the Eurozone today with the EMU current account, purchasing manager index and industrial new orders released tomorrow.

Other Currencies – Highlights

The yen advanced overnight as Japanese trade balance figures show the slump is slowing down. March export figures snapped a four month spell of record losses and this, in combination with worries over what further stress tests could expose in the US, caused the yen to advance on a basket of international currencies.

The Bank of Canada cut interest rates to a record low of 0.25% yesterday and plans to leave it there until inflation returns to its 2% target. The Canadian economy is expected to shrink 3% this year and the central bank is expected to announce a framework for quantitative easing on Thursday. This is weighing on the Canadian dollar at present. Leading indicators are published today.

According to the Institute for Fiscal Studies, the UK’s deficit is about 2.7% more than Chancellor Alistair Darling acknowledged in the pre-Budget report. The government may have to find £39bn a year by the end of 2015/16, to plug the gap in its finances, the IFS predicted.

Mr Darling, who will present his Budget on 22 April, has said the recession will be more severe than forecast. In making its calculations, the IFS assumed that the government would ultimately have to cover bank losses of £130bn, which have so far not been included in the government’s calculations.

Pound Sterling – UK Markets

UK car sales fell by 30.5% in March, compared with the same month last year, the latest industry figures have shown. The number of new UK registrations in March was 313,912, down from 451,642 the year before, said the Society of Motor Manufacturers and Traders. SMMT chief executive Paul Everitt says the government needs to do more to boost confidence.

The pound has hit a two-month high against the US dollar in morning trading as investors reacted to further gains made by UK equities. A rise of over half a cent has taken the pound to interbank levels not seen since February – between 1.4601 and 1.4987.

US Dollar – US Markets

According to figures from the Department of Labor, the number of people employed in the US fell by 663,000 in March. The jobless rate rose to 8.5% from February’s figure of 8.1%, meaning it is still at its highest since 1983. It means that since the recession began in December 2007, 5.1 million jobs have been lost, 3.3 million of them in the past five months.
Euro – European Markets

Data from European Union statistics agency Eurostat has shown that eurozone industrial producer prices posted their biggest drop in annual terms for almost 10 years in February.

The report will heap pressure on the European Central Bank to lower interest rates further in the months ahead, with factory gate prices dropping 0.5% on the month, leaving them 1.8% weaker than in February last year. The drop is the seventh consecutive monthly decline in prices.

The Bank of Spain has predicted that the country’s rate of unemployment will reach 17.1% in 2009 and 19.4% in 2010. Spain currently has the highest unemployment rate in the European Union, with a rate of 15.5% in February, nearly double the EU average.

Other Currencies – Highlights

The Czech koruna has risen to a 2-week high against the US dollar after a report showed that the Czech trade surplus increased more than expected in February.

A report by the Czech Statistical Office said the trade surplus stood at CZK8.69 billion in February, up from CZK3.46 billion in the previous month. Economists expected the surplus to increase to CZK5 billion. A year ago, in February, the surplus was CZK13.03 billion. In February, exports dropped 22.2% year-on-year to CZK169.4 billion, while imports fell 21.5% to CZK160.7 billion. At the time of writing, interbank levels for the koruna-dollar pair are around 19.495 and 19.535.

World leaders yesterday agreed on a $1.1 trillion injection of financial aid into the global economy, with Gordon Brown claiming that the grand bargain he had brokered represented “a coming together of the world” which would speed recovery from the worst recession since 1945. The deal contains tougher-than-expected measures to tighten financial regulation, including a clampdown on tax havens.

Pound Sterling – UK Markets

Sterling jumped to a seven-week high against the US dollar today after UK service sector data posted a higher-than-expected reading. The PMI Services activity index rose to 45.5 in March from 43.2, the highest reading since September, and beating economists’ forecasts of 43.5. The surprise increase caps a good week for UK economic data with PMI Manufacturing and PMI Construction releases improving as well.

The pound has since risen against the US dollar to between 1.4498-1.4898, the highest figure since late November. The euro is now down around 0.4 percent against the pound at a figure around 90.91-90.95 pence.

However, UK house prices fell by 1.9% in March compared with the previous month, according to the Halifax. The average UK home now costs £157,226, at least £30,000 less than a year ago. When comparing the average price from March compared with March 2008, the drop was 17.6%. The reported month-on-month change comes in contrast to the “surprise bounce” of 0.9% in March reported yesterday by the Nationwide Building Society.

US Dollar – US Markets

With investors’ risk appetite boosted by the outcome of the G20 meeting, the US dollar rose briefly above 100 yen in Asian trading on Friday, the first time it had done so since early November 2008. Caution has since returned to the market, ahead of US employment figures due later in the day, which are expected to show the US economy continued to lose jobs in March. Economists estimate that the US economy lost 656,000 jobs in March.

Euro – European Markets

More dire news from Spain as the fall in industrial production continued to gain pace in February, pointing to a deepening slump for the eurozone’s fourth-largest economy. According to preliminary data from Spain’s National Statistics Institute, Spanish February industrial production fell 22% in calendar-adjusted terms, following a 21% decline in January and 20% fall in December.

Other Currencies – Highlights

China’s manufacturing sector showed some growth in March for the first time in six months. The purchasing managers index from the China Federation of Logistics and Purchasing rose to 52.4 from February’s figure of 49. Any figure above 50 indicates an expansion in the manufacturing sector. With manufacturing accounting for about 40% of China’s economy, it has been hit by falling demand from its customers in recession-hit western economies.

According to the Federal Statistics Office of Switzerland, Swiss consumer prices fell for the first time in five years in March, dropping by the biggest annual amount in almost 50 years, as the central bank said it would fight deflationary threats. The drops were bigger than forecast and followed unexpected monthly and yearly rises of 0.2 percent in February. Following the report, the franc has fallen against its major counterparts. The Swiss currency is currently trading between 1.5274-1.5474 against the euro, around 1.115-1.1370 against the US dollar and between 1.6482-1.6882 against the pound, an 18-day low.