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Stock markets climbed to a four-month high in London this morning, as abating fears over swine flu and prospects of economic recovery improved appetite for risk. Recent PMIs released in the UK and Europe have shown the pace of recession is easing and this has improved market sentiment. Interest rate decisions from the ECB and Bank of England are due this week.

Pound Sterling – UK Markets

The pound is up over 1% on the dollar and euro this morning as the FTSE climbs to a four month high. Sterling is currently trading above 1.5 on the dollar and 1.12 on the euro but has lost ground against the Australian, New Zealand and Canadian currencies.

The London FTSE gained 2.5% this morning to touch on the highest levels since mid January as traders returned from a bank holiday weekend in the UK. RBS and Lloyds both gained over 10%. Prospects of economic recovery in 2010 are fuelling the bullish trend in equities as PMI’s show the pace of recession easing in the UK. Statistics from the British Banking Association showed lending to small businesses increased by £270 million in March and new mortgage approvals climbed by 39,000. The rally is also despite more than 5000 British jobs being put at risk as General Motors is set to merge with Fiat. This morning BAA has also reported a 10% drop in passenger numbers. We could see some exchange rate volatility this week with the Bank of England meeting on Thursday. Today the Nationwide consumer confidence survey is released.

US Dollar – US Markets

The dollar is broadly weaker this morning, declining over 1% against the Aussie and Kiwi currencies. The dollar to euro exchange rate is in the region of 0.74 while the sterling exchange rate is hovering around 0.66. The dollar has also lost ground against the Japanese yen and other European currency partners.
Results of the stress tests on US banks are due out this week and they could show as many as 10 companies in need of additional capital. This news has failed to halt the upward momentum in equities as economists are predicting the clarity and certainty the results will provide will benefit markets in the long term. Pending home sales have increased by 3.2% in March while construction spending is up by 0.3%. This prospect of recovery in the property market has also added to positive market sentiment. Oil has climbed to $54 a barrel with copper and other commodities also posting gains. The Washington Post consumer confidence survey is out today.

Euro – European Markets

The euro has climbed above 1.33 against the US dollar and dipped slightly against the pound as market confidence improves appetite for risk. The euro has also gained against its major Asian currency partners while declining against the Swedish kroner and South African rand.

The European Commission has predicted that the 16 nation eurozone economy will contract by 4% this year. This is more than twice as bad as initially thought and the EC predicts grim months ahead with the eurozone unemployment rate reaching 11%. Spanish unemployment is expected to top 20%. This morning UBS, Switzerland’s biggest bank, has confirmed a CHF2 billion loss in the first quarter, largely due to write downs from risky investments. However there are some positive signals from the eurozone with the PMI for manufacturing climbing upwards in April. The ECB is expected to reduce the repo rate by 0.25% at this Thursday’s meeting.

Other Currencies – Highlights

The Australian dollar reached seven month highs against the US on Monday on the back of improved investor confidence. The RBA decision to leave interest rates on hold at 3% has capped any further gains and additional cuts to the base rate are expected later in the year. Australian retail sales and trade balance are due out tomorrow.

The South African rand is currently trading at 12.5 versus the pound and 8.3 versus the dollar. The rand, which has been one of the strongest performing currencies this year, is currently regarded as overvalued by economists. While the rand has strengthened on the basis of growth prospects and improved commodity prices, economists claim the strong rand is undermining export competitiveness, crucial to the export orientated economy.

Yesterday brought an improvement in risk appetite with the news that Citigroup operated profitably in the two months of 2009. Accompanied by a speech from Ben Bernanke, this news restored market confidence and equity markets rallied which was reflected in currency exchange rates. This rally however has excluded Sterling, which remains weak on the back of unease surrounding Bank of England policy and a sharp decline in industrial production figures.

Pound Sterling – UK markets

The Pound fell to a 3 month low of 1.36 against the US Dollar yesterday and a five week low against the Euro, pressured by a combination of risk aversion, market unease and negative economic data from the UK. This morning the Pound has been trading in the vicinity of 1.37 versus the Dollar and 1.08 versus the Euro. The Pound has trimmed losses against the Australian and Kiwi Dollars although remains weak against its international currency partners.

Uncertainty surrounding the Bank’s quantitative easing programme and sharp declines in manufacturing and industrial production weighed on Sterling overnight. The Bank of England is to embark on a £75 billion quantitative easing programme today, which is designed to stimulate the UK economy over the next three months. Figures yesterday showed a 2.9% decline in the manufacturing sector prompting speculation that UK output could slump by 4% in 2009. Manufacturing output has now been in decline for 11 consecutive months and analysts are predicting the -1.5% contraction in the final quarter of 2008 could be repeated in the first quarter of 2009. Goods trade balance figures released this morning show a current deficit of -£7.7 billion illustrating reduced demand for UK exports and this could also weigh on Sterling throughout the day. The rest of the week is light for UK data.

US Dollar – US Markets

Results for the US Dollar exchange rates are mixed this morning as improved appetite for risk has permitted minor rallies in the higher yielding currencies. The Canadian, Australian and New Zealand Dollar have all gained on the US, along with the Euro, Pound and Swiss Franc.

US markets rallied yesterday after Ben Bernanke boosted confidence by stating the US could be out of the economic slump by the end of the year. Citigroup, which is now 40% government owned, operated profitably for the first two months of 2009 and this news sent the Dow Jones up 300 points after touching on 12 year lows last week. The FTSE 100 also gained 5%. Bernanke emphasised in his speech that stability in the banking sector is still a prerequisite to economic recovery, implying that this has not been achieved as yet. Moody’s has named a list of ‘bottom rung’ American firms that are likely to go bust this year due to limited credit markets and global downturn. The list includes the big 3 car manufacturers, GM, Ford and Chrysler as well as a number of high profile media companies and casinos. US mortgage application figures are due out today.

Euro – European Markets

The Euro is largely unchanged this morning, trading at 1.26 against the US Dollar and up slightly against the Pound to 0.92. The Euro has also gained on the Swiss Franc, Australian and Canadian Dollars.

Switzerland’s biggest bank UBS has posted a 20.9 billion Swiss Franc loss in 2008, the largest in Switzerland’s history. The German producer price index released this morning shows a -1.2% price decline in January, a day after figures showed a sharp narrowing of the German trade deficit and a decline in French industrial output. Recession is progressing with gathering pace in the Euro zone. German factory orders are out later this morning and the ECB monthly report is released tomorrow.

Other Currencies – Highlights

Dominique Strauss Kahn, Managing Director of the IMF has made a speech in Tanzania predicting that world growth would be 0% this year. Strauss Kahn has dubbed the economic downturn the ‘Great Recession’ and the IMF expect growth rates in Africa to significantly decline due to a lack of foreign investment in the region.

Australian business conditions have deteriorated to the lowest levels since the early 1990’s. The Australian and Kiwi Dollars gained ground overnight following Ben Bernanke’s speech in the US which restored market confidence. Gains for the Kiwi will be limited by the pending RBNZ interest rate decision. New Zealand retail sales and Japanese GDP are due out tomorrow

Markets returned to risk aversion on Friday as figures out in the US showed unemployment has reached a 25 year high. The Pound is significantly lower against the US Dollar this morning as the government is set to take control of Lloyds banking group. International equities remain risk averse as the World Bank has predicted the global economy will contract for the first time since WW2 due to the current downturn.

Pound Sterling – UK markets

Sterling has plunged this morning, trading below 1.4 against the US Dollar and losing ground against all its major currency partners amid market unease over the health of the banking sector.

Shares in Lloyds and HSBC have plunged in value amid fears over further losses in the banking sector. Lloyds shares lost 14% in London this morning as the bank ceded control to the government after their 70% nationalisation in return for insurance on over £260 billion worth of risky assets. The British Chamber of Commerce has predicted unemployment will hit 3.2 million, or 10% of the UK workforce by 2010. The BRC regards the promotion of business activity as crucial to lifting the economy out of recession and the government has spent £20 billion since the beginning of the year to increase lending to small business. Industrial and manufacturing production figures for the UK are due tomorrow and the BRC retail sales survey is released.

US Dollar – US Markets

The Dollar has gained on the Euro, Pound and Yen as risk averse investors favour the world’s foremost reserve currency. US equities are in negative mode after dire unemployment statistics on Friday and market fears over the future of AIG.

The US unemployment rate released on Friday showed the economy shed 651,000 jobs in February taking the official unemployment rate to 8.1%. This is a 25 year high for the US and equity markets remain in negative mode this morning. The World Bank has predicted global trade will decline for the most in 80 years and world growth is expected to contract for the first time since WW2. A hangover from massive profit losses at AIG last week is threatening market confidence this morning and AIG has appealed to US regulators for funds for the fourth time since the credit crunch began. The appeal for further aid was made on the basis that failure at AIG would ‘cripple’ world markets as insurance is crucial to supporting the sense of risk a capitalist economy requires. Today is light for US data with the Washington Post Consumer Confidence survey due tomorrow.

Euro – European Markets

The Euro shows mixed results this morning, trading at lower levels versus the Dollar, Yen and Swiss Franc, although the single currency has gained on the higher yielding Pound, Australian and Kiwi Dollars.

European and Asian equities continued to decline this morning on the back of revised growth predictions from the World Bank and market fears over AIG. The economic situation in Russian continues to deteriorate and Russian finance ministers have flown a team of financial experts from Credit Suisse to advise them on how to deal with potential bank nationalisations. The Russian economy contracted 8.8% in the year to January and unemployment is set to hit 10 million. The unemployment rate in Switzerland has risen to 3.1% in February, up from 3% the previous month. There is no major data from the Eurozone today and Germany’s trade balance and consumer price index are due tomorrow.

Other Currencies – Highlights

The Australian Dollar has declined against the US this morning, after falling a total to 21% in 2008. Despite a decline in global trade and reduced commodity demand, the Australian government is optimistic over Australia’s economic prospects moving forward and the RBA opted against cutting interest rates last week. Results of a survey of Australian business conditions are out tomorrow.

The Yen is up this morning, boosted by diminished risk appetite internationally despite the country posting its first current account deficit since 1996. This comes as the Japanese export industry collapses due to the significant contraction of export markets and the high value of the Yen. The leading economic index for Japan is out tomorrow.

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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Sterling is under pressure this morning over losses in the banking sector. Lloyds is yet to strike a deal with the Treasury over inclusion in the Asset Protection Plan and HBOS has announced over £10 billion worth of write downs for 2008. GDP figures out in the US later today will be a source of interest for markets as growth prospects in the world’s largest economy remain a key driver of economic sentiment and currency exchange rates.

Pound Sterling – UK markets

The Pound has declined against the Dollar overnight and is also lower against the single currency as losses in the banking sector dominate headlines in the UK. Markets have gained some solace over the level of Government commitment to the bail out but the prospect of rising government debt is anchoring Sterling to the bottom end of trading ranges. The Pound has gained on the Australian and New Zealand Dollars as appetite for risk diminishes ahead of US GDP figures out today.

Yesterday Sterling suffered in response to the news that the Government would increase its stake in RBS to 84%. Current predictions show the level of taxpayer ownership could rise as high as 95%. Shares in fellow banking giant Lloyds have plummeted 7.4% this morning following news that the bank is yet to strike a deal with the Treasury to insure over £200 billion worth of toxic debt. Despite posting a profit of £807 million in 2008, Lloyds shares have been dragged down after the acquisition of HBOS late last year. HBOS lost £10.8 billion before tax in 2008. UK consumer confidence rose slightly in February, up 2 points from January as the effects of monetary easing are starting to work their way into the economy. There is no further data in the UK today.

US Dollar – US Markets

The Dollar has spiked against the Euro and Pound this morning ahead of annualised US GDP and personal consumption figures to be released later in the day. Investors remain uneasy about what these announcements will bring and this is fuelling risk aversion which is driving Dollar strength. The US Dollar is up over 1% on the Australian and Kiwi Dollars and has gained 0.95% on the Pound.

Growth prospects in the US remain a key indicator of market sentiment and currency exchange rates. An annualised contraction of -5.3% is expected for the fourth quarter following a 0.5% annualised contraction in the third. This represents the drastic decline in the US economy following the market shocks in late 2008. Personal consumption expenditure will also be viewed with interest as consumer spending accounts for 70% of the US economy. The Obama administration has instructed Citigroup to find a private source of capital after committing $45 billion to the bank last year. Shares in Citigroup fell below $2 for the first time in 18 years this week amid speculation that the Bank would be subject to nationalisation. GDP and personal consumption figures are out later in the day.

Euro – European Marketsrrencies

The Euro remains bearish this morning due to a combination of risk aversion, lower commodity prices and the prevailing market view of economic deterioration in the Eurozone. The Euro is up against the Pound, Australian and New Zealand Dollars although has suffered declines against its other currency partners including the Yen, Canadian and US Dollar.

European equities were in retreat yesterday amid concerns over commodity prices and the economic situation in Eastern Europe. The Hungarian Prime Minister has requested a ?180 billion aid package for Eastern Europe which is set to include recapitalisation for banks and restructuring of foreign debt. The rapid depreciation of national currencies is also a pressing concern. The Polish Zloty has dropped 29% against the Euro in the last 6 months and other currencies have suffered similar declines. The EMU consumer price index and employment rate are out today along with the consumer price index for Germany.

Other Currencies – Highlights

Australian markets received a boost overnight as strong capital spending figures triggered confidence in the economy to weather global recession. Capital spending in the final quarter of 2008 showed a 6% rise despite expectations of a 3% decline. Capital spending makes up 10% of GDP and this sent the Australian Dollar higher against the US Dollar. The return of risk aversion this morning though has seen the US Dollar recover over 1% on the Aussie. The RBA interest rate decision is due next week.

Canadian stocks have rallied overnight as three major banks posted higher than expected profits. The National Bank of Canada, Royal Bank of Canada and Canadian Imperial Bank of Commerce each gained more than 6% after making profits without the help of government aid, boosting investor confidence in the sector.

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The Pound is sitting lower this morning against the Euro and US Dollar after RBS has posted the largest loss in corporate history. The bank which is now 68% taxpayer owned lost £24 billion in 2008. In combination with GDP figures which showed the UK economy contracted -1.5% in the fourth quarter, this news damaged the exchange rate value of Sterling, sending it back to the bottom end of ranges against its international currency partners.

Pound Sterling – UK markets

The Pound has lost ground against the US Dollar and Euro overnight, declining to 1.42 and 1.11 respectively after GDP figures revealed a sharp contraction in the fourth quarter of 2008. The Pound is also down against the Swiss Franc and Australian Dollar, but has gained on the Yen and other Asian currency partners.

The Pound declined yesterday as GDP figures revealed a sharp 4th quarter contraction of an unrevised -1.5%. A breakdown of these figures showed a 4.5% decline in industrial production and a 2.3% decline in investment. The only expansion came from Government services which grew by 1.5% and David Blanchflower of the MPC is predicting first quarter GDP to be significantly worse. This morning the Pound has suffered further following news that RBS posted a loss of £24.1 billion in 2008, the largest in corporate history. This was blamed on ‘unprecedented turbulence’ in financial markets and the bank expects further difficulty throughout 2009. After paying the government £6.5 billion worth of preferential shares to take part in the Asset Protection Scheme, the bank is to place £300 billion worth of troubled assets with the UK taxpayer. Nationwide building statistics released this morning show house prices have fallen 1.8% in February, taking the average house price down 17% from a year ago. There is no further data in the UK today.

US Dollar – US Markets

The Dollar is down against the Pound and Euro this morning as weak home sales figures yesterday damaged the Dollar’s safe haven image. The Dollar is also down against the Canadian, Australian and Kiwi Dollars as markets retain a small appetite for risk in the wake of comments from Ben Bernanke and President Obama yesterday.

News that US home sales fell by 5.1% in January capped Dollar gains yesterday. The Federal Reserve expects an upturn in growth to take place in the third quarter of 2009 and despite recent rallies, this news is muting the tone in UK and European equities, as growth here is expected to follow the US by approximately three months. A raft of US data is out today from jobless claims to durable goods orders and market sentiment is likely to be the primary determinant of currency exchange rates.

Euro – European Markets

The Euro is up against the US Dollar this morning, trading at 1.27 and the Euro-Pound exchange rate is currently 0.89. The Euro has also strengthened on the Yen and it’s other Asian currency partners.

European equities remain positive this morning following Ben Bernanke’s announcement that the Federal Reserve would not be looking to nationalise major American banks. UBS shares rose yesterday after Switzerland’s biggest bank hired the former CEO of Credit Suisse to restore market confidence. The news was interpreted positively by markets and Europe’s Dow Jones climbed 1.9%. The German unemployment rate has risen to 7.9% as a further 40 000 people were made jobless in February as recession deepens in the Eurozone’s largest economy. Today markets will be interested in consumer, industrial and economic confidence figures to be released in the Eurozone.

Other Currencies – Highlights

The Yen fell to a three month low against the US Dollar and weakened against the Euro overnight after figures yesterday revealed a 46% drop in exports. The Yen is heading for its worst month against the Dollar in 13 years and faces threats to its status as an international safe haven as the country is hit increasingly hard by the global recession. A series of significant data is released in Japan today, including industrial production, consumer price index and retail trade figures.

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The Eurozone economy contracted -1.5% in the fourth quarter of 2008, dragging annual growth down to -1.2%. US retail sales figures yesterday showed an unexpected increase by 1% in January, providing a slight boost in risk appetite and allowing the Pound to recover some of the losses made earlier in the week.

Pound Sterling – UK markets

The Pound is gaining on the US Dollar this morning, trading at 1.45 and has gained over 2% on the Yen as a degree of risk appetite has returned with the announcement of better than expected retail sales figures in the US. The Pound has also gained 1.4% on the Euro this morning, trading at 1.12 and is stronger against its Asian and Australasian currency partners.

Positive retail sales figures in the US provided a boost to risk appetite overnight which saw Sterling recover some of the ground lost yesterday. Gloomy industrial production statistics for the Eurozone and an absence of UK data have also helped the Pound to strengthen. This morning Virgin Atlantic has announced 600 job cuts which amounts to 7% of its workforce as recession is affecting long haul travel figures. The recession has also hit the football industry with Chelsea posting a £65.7 million loss in the year to June 2008. Today is light for UK data with consumer and retail price indices due early next week.

US Dollar – US Markets

The Dollar has declined overnight as a degree of risk appetite returns to markets. Sliding 1.6% against the Pound and 0.3% against the Euro, the Dollar is also weaker against its major European and Australasian currency partners.

US retail sales figures released yesterday showed a 1% increase in January, breaking a slide of 6 consecutive months. This gains back one third of the retail spending drop in December and provided a slight boost to equities in an otherwise unremarkable week. The retail sales figures also fuelled optimism that interest rate reductions and monetary easing policy are starting to impact on the wider economy. The price of oil remains in the region of $45 a barrel as unease continues over when the turning point for recovery will be. There is no major data out in the US today.

Euro – European Markets

The Euro is up this morning, recovering from two week lows against the Dollar to trade at 1.29 and is down nearly 1.3% on the Pound to 0.89. The Euro has also gained on the Swiss Franc, Yen and most of its European currency partners.

GDP figures for the Eurozone this morning show the economy has contracted -1.5% in the final quarter of 2008 taking year on year GDP down by -1.2%. The German economy, the Eurozone’s largest, has also contracted by -2.1% in the fourth quarter of 2008, dragging year on year growth down to -1.6%, the worst performance since 1990. Industrial production figures for the Eurozone yesterday showed a -2.6% decline in December, taking annual levels to -12%. This contraction is deeper than UK figures and could be a source of Euro weakness to come. There is no further data from the Eurozone today.

Other Currencies – Highlights

The Australian and Kiwi Dollars remain volatile, subject to macro-economic trends and pressured by increasingly negative economic data. The Australian Senate has passed the AUD42 billion rescue package which was held up in a tied vote yesterday, after reaching a political compromise. The plan includes provision for greater public works spending and is equivalent to 1.3% of Australian GDP. In New Zealand retail spending has declined for the fourth consecutive month and home sales have slumped to their lowest level in 20 years.

Egypt has lowered interest rates for the first time since 2006 as slumping commodity prices have led to easing inflation. The Central Bank reduced the base rate yesterday by 100 basis points to 10.5%. Recession will affect many developing nations through a decline in tourism, trade and remittance income. The Canadian Dollar is faring well as investors seek out the safety of gold as an asset. Figures regarding foreign investment in Canadian securities are due on Monday.

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The Pound has slumped overnight, under pressure from negative data in the UK and the return of risk aversion internationally. European and US equities remain lacklustre as the Federal Reserve rescue package has undergone ‘nips and tucks’ in the interest of a compromise in the Senate.

Pound Sterling – UK markets

The Pound has declined sharply overnight, lower against all its major currency partners as the effect of the Bank of England’s report, rising unemployment and increased risk aversion take their toll on Sterling. This morning the Sterling-Euro exchange rate is at 1.10 while the Sterling-Dollar is 1.42. The Pound is also down over 1.8% against the Yen.

Bank of England Governor Mervyn King revealed yesterday he expects the UK economy to contract up to 4% in the first quarter of 2009 and unemployment statistics show the number of jobless at almost 2 million. In his speech King hinted at further unconventional attempts at monetary easing and money supply at a time when growth prospects remain “unusually uncertain”. This uncertainty is dampening investor confidence, particularly at a time when quantitative easing is still on the table as a tactic for consideration. This option is viewed by economists as fraught with risks and would likely have a severely negative impact on Sterling exchange rates. The issue of corporate bonuses is gaining traction in Parliament after RBS claimed it is still to pay up to £1 billion worth of bonuses despite making 2,300 job cuts yesterday. Current predictions are for economic recovery to begin by the fourth quarter of 2009 and carry on into 2010 by when recent monetary easing  policy should begin to impact on markets. There is no significant data out in the UK for the rest of the week.

US Dollar – US Markets

The Dollar has strengthened across the board this morning, benefitting from its reserve status as global equities still remain in negative mode. The Dollar is up over 1% on the Australian, Kiwi and Pound and has gained 0.4% on the Euro.

US market focus remains on the passing of the Federal Reserve package and in the absence of decisive policy action US equities have been lacklustre. Congress is currently moving towards passing a $789 billion rescue package, smaller than the original versions as ‘nips and tucks’ have been made to ensure a political compromise. Economists are predicting the US economy to contract 2% this year and despite Obama’s attempts to create 3.5 million jobs, unemployment is expected to top 8% in 2010. US retail sales figures, a key driver of the US economy, are out today.

Euro – European Markets

The Euro has had mixed results overnight, declining against the US Dollar but gaining on the Pound. The Euro-Sterling exchange rate has climbed to 0.90 while the Euro-Dollar has sunk to 1.28. The Euro is also up on the Aussie and Kiwi Dollars, yet is down against the Canadian Dollar and Yen as investors favour traditional safe havens.

The EUR-USD exchange rate is broaching a weekly low at 1.28 and the Euro is coming under selling pressure while market doubts remain about the effectiveness of the US stimulus package. The ECB monthly report for February cited the extraordinary exchange rate volatility in recent months as uncertainty surrounding the length and depth of global recession has prevented traders from taking up long term positions. European equities remain negative and the Swedish Central Bank cut interest rates yesterday to 1%. EMU industrial production figures are due this morning and GDP for Germany and the EMU are out tomorrow.

Other Currencies – Highlights

Mixed news from Australia this morning as figures show the economy has added 1,200 new jobs, yet the unemployment rate has risen to 4.8%. Business confidence is also at the worst level since 1992. This would suggest the Australian economy is still in the early stages of the downturn and the Australian Government has claimed the economy will contract without the aid of a fiscal stimulus package. The AUD42 billion plan proposed by the Government has been defeated in the Senate in a tied vote. This will force PM Kevin Rudd back to the drawing board and the Aussie and Kiwi Dollars are likely to remain dominated by market focus on risk aversion with US retail sales to be released later in the day.

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Retail sales figures in the UK are up 1.1% in January despite the grim economic climate. Labour’s School Secretary Ed Balls has claimed the recession is the worst in 100 years and balance of trade figures out this morning reflect reduced domestic consumption and export demand. Global equities remain neutral pending the announcement of the Federal Reserve rescue package.

Pound Sterling – UK markets

The Pound is trading at 1.47 against the Dollar this morning having weakened ahead of UK trade statistics. Sterling has also advanced to 1.14 on the Euro and is up against the South African Rand and Swedish Kronor this morning.

UK balance of trade figures have come in at -£3.60 billion reflecting a downturn in consumer expenditure and contraction in the UK’s two biggest export markets, the US and Eurozone. The British Retailers Consortium has shown retail sales have risen 1.1% in January in like-for-like sales from this time last year. The rise was driven by a surge in food sales yet sales of all other goods have fallen and it remains to be seen whether these figures are a “blip” in the radar or indicative of a more positive trend. Ed Balls has predicted the recession could be the worst in 100 years as “seismic events” continue to shift the financial landscape. RBS and HBOS former chief executives are to face the Treasury Select Committee over their role in the current financial crisis and bonuses have also come under the political spotlight as it has emerged RBS are to pay up to £1 billion to bank staff. We can expect some volatility for Sterling with the UK unemployment rate and Bank of England Quarterly Inflation Report due tomorrow.

US Dollar – US Markets

The Dollar is gaining against the Pound and Euro this morning as details of the rescue package are to be released in Washington today. The Dollar is also up against its major European and Asian currency partners.

Treasure Secretary Timothy Geithner is to speak in Washington today, unveiling aspects of the Federal plan to revive credit markets and remove toxic assets from bank balance sheets. Global equities have been neutral overnight in anticipation of the announcement and currency exchange rates are still taking their cues from trends in financial markets. A positive reception to the plan could fuel a global surge in risk appetite. President Obama has also announced that the Government would be seeking a credit expansion should the initial $900 billion plan fail. This is an acknowledgement of the criticism from many high profile economists that the plan is insufficient to stimulate credit markets. Timothy Geithner is to speak at 11 am in Washington today and the Washington Post Consumer Confidence Survey is out in the US.

Euro – European Markets

The Euro has fallen overnight to 1.29 versus the Dollar and 0.84 against the Pound amid reports that Russian banks have asked the government to act as an intermediary with foreign creditors. The Euro is also down against the Yen and its other Asian currency partners as global markets remain neutral pending further news from Washington.

Concerns around the health of the Russian economy are putting pressure on the Euro as European banks are those most exposed to credit losses in Russia. Reports from Russia suggest banks are in trouble with foreign creditors and have asked for government intervention. This comes after the Russian Central Bank raised the repo rate for the second time in a week in an attempt to halt the decline of the Ruble and the Yen has risen for the fourth consecutive day against the Euro. Switzerland’s largest bank UBS has reported a 19.7 billion Swiss Franc loss in write downs for its investment arm in 2008. The bank is to cut a further 2000 jobs and focus on ‘core domestic’ business for the time being. Swiss CPI also fell 0.8% in January, taking annual inflation rates to 0.1% and prompting further speculation that deflation could be a problem in the Eurozone. German Consumer Price Inflation figures are out tomorrow.

Other Currencies – Highlights

The Australian and Kiwi Dollars have declined against the Pound overnight and gained on the Euro as the Aussie and Kiwi remain vulnerable to wider market movements. The South African economy is being hit by declining metal prices as the global recession reduces commodity demand. Mining accounts for 7% of the South African economy and 24,000 jobs are on the line. The Australian unemployment rate and business confidence figures are due on Thursday.

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