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Revised second quarter GDP figures show the UK economy contracted -0.7% in the second quarter, slightly less than the -0.8% previously recorded. Economic and industrial confidence for the eurozone has come in positive this morning, while US personal consumption figures are likely to cause some currency volatility later in the day.

Pound Sterling – UK Markets

Sterling exchange rates came under continued selling pressure yesterday after weak retail sales reduced confidence in the pound. This morning sterling rose slightly against its European and Asian currency partners, trading at 1.62 against the US dollar and 1.13 against the euro.

Despite positive housing figures yesterday, the pound came under pressure from a report which showed business investment in the UK has fallen the most in 24 years. GDP figures released this morning have been revised upwards, showing that the UK economy contracted -0.7% in the second quarter, rather than the -0.8% previously recorded. This could help lift sterling today, while UK exchange rates will also likely be affected by consumer figures out in the US.

US Dollar – US Markets

Exchange rates for the US dollar are slightly lower this morning, losing ground against the pound, Australian and Canadian currencies. The greenback has climbed against the yen, euro and New Zealand dollar ahead of key consumer releases in the US today.

The core personal consumption index is due in the US today and this, along with personal income and expenditure for July will help provide an insight into consumer spending in the US economy. Consumer activity is crucial to economic recovery and the figures are expected to rise following the “cash for clunkers” initiative. The figures are due this afternoon.

Euro – European Markets

Euro currency rates have dipped slightly this morning, although the single currency remains at the top of recent ranges, particularly against the pound. The euro is currently trading at 1.43 against the US dollar and 0.87 against the pound.

The euro is heading for its second monthly gain on the US dollar, as euro sentiment has improved following the emergence of France and Germany from recession. German consumer confidence has leapt to a three-year high and European markets have gained this morning following positive results from Dell and higher metal prices. Economic and industrial confidence for the eurozone has exceeded market expectations this morning, while consumer confidence came in slightly lower than expected.

Other Currencies – Highlights

Currency exchange rates for the yen remain strong this morning, following news that Japan’s unemployment rate rose to 5.7%, ahead of the expected 5.4%. Consumer prices are also falling at record levels and as this comes on the eve of the general election, the news is a blow for incumbent prime minister Taro Aso.

Australian currency exchange rates are heading for the longest month of gains in over 20 years against the US dollar following a rally on the back of economic recovery. Record low interest rates and rising commodity prices have helped lead the Australian currency higher in recent months against the yen and US dollar. The New Zealand dollar is also on the verge of seven months worth of gains against the yen.

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.

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.

Currency exchange rates have opened on a weak note this morning as North Korean missile tests and concern over government debt levels led to a more neutral trend in equities. With US and UK markets closed for a bank holiday yesterday the euro strengthened over the pound and dollar, although this morning these losses have been recovered.

Pound Sterling – UK markets

A bank holiday in the UK yesterday saw sterling currency rates weaken against the euro. This morning the pound has recovered these gains, currently trading at 1.13 on the euro and 1.58 against the US dollar.

Last week’s figures showed the UK economy contracted an unrevised 1.9% in the first quarter of 2009. This is largely due to a 5.9% drop in exports leading to significant contraction in the industrial production sector. Also last week the Standard and Poor’s downgraded the UK sovereign credit rating based on the level of government debt as a proportion of GDP. These factors are responsible for the weak trend in Sterling at present as investors worry over government debt levels worldwide. This morning Virgin Atlantic announced it has doubled annual profits, despite rising oil prices and the recession. This is in contrast to British Airways who announced a GBP401 million pre-tax loss for the last year. There are no major announcements in the UK today.

US Dollar – US Markets

With US markets also closed for a public holiday yesterday the dollar lost ground against the euro overnight. This morning this has been recovered as US currency rates have climbed to 0.63 against the pound and 0.71 against the euro.

At present the underlying trend in US markets is negative as investors worry over government debt levels. While recent weeks have brought investors optimism based on recovery prospects, leading to gains in equities and currency exchange rates, the current focus on government debt levels is creating a sense of underlying nervousness in the market. With the Standard and Poor’s last week downgrading the UK credit rating, other countries have now come under the international spotlight. The US budged deficit is also sizeable and this is affecting dollar sentiment. Consumer confidence figures are out in the US today.

Euro – European Markets

With US and UK markets closed for a bank holiday yesterday the euro advanced on both currencies. This morning, these gains have been trimmed as the pound and dollar recover against the single currency. At present, euro currency rates are weaker against the Australian and New Zealand dollar and little changed against the yen and US dollar.

European equities opened on a weak note this morning amid concerns over the North Korean missile tests and debt amongst European banking institutions. Export levels in Germany plunged 9.7% in the first quarter and the economy as a whole contracted 3.8%. Figures released this morning show new industrial orders for the European Monetary Union have fallen by -26.9%. Although significant, this is an improvement on the last quarter and shows the pace of decline is easing. The German consumer price index is out tomorrow.

Other Currencies – Highlights

South Africa’s economy contracted by -6.4% in the first quarter, sending the entire economy into recession as mining and construction were scaled back due to the global recession. This follows a -1.8% contraction in the fourth quarter of 2008, reflecting a sharp downturn in economic activity. This news snapped a decade of growth for South Africa and weeks of gains for the rand, which weakened on the back of the negative figures.

The New Zealand dollar is likely to experience some volatility this week with the release of the annual budget. This could impact on credit ratings also which seem to be in the international spotlight at present.

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.

Equity markets have been on hold overnight as investors suddenly feared they may be taking on too much risk. There remain a number of unknowns in the global economy and further evidence of positive data may be needed to trigger another rally. Currency exchange rates are little changed although the ‘higher risk’ Australian and New Zealand currencies have trimmed gains against the US dollar and euro.

Pound Sterling – UK Markets

Sterling currency exchange rates are little changed overnight. The pound is currently trading at 1.51 against the US dollar and 1.11 against the euro. The pound is also up slightly against its other European, Asian and North American currency partners on the back of improved retail sales figures for April.

British retail sales rose at their fastest level in 3 years in April, jumping 6.3% from the same time last year. This news boosted sterling this morning and added to hopes that the recovery process may be underway. New enquiries in the housing market and house prices have also shown a tentative improvement. An OECD think tank has noted the pace of decline may be easing in France, the UK and China despite the fact that the global economy as a whole remains in deep recession. Industrial production figures for March released this morning show a -0.6% contraction, with manufacturing production declining by -0.1%. Both results are better than expected. The Bank of England’s Quarterly Inflation report is due tomorrow and this is likely to affect the underlying trend in sterling.

US Dollar – US Markets

The dollar is down 0.43% against the euro this morning and has sunk 0.47% against the pound to trade at 0.73 and 0.65 respectively. The dollar has also declined against the Australian, New Zealand, Japanese and Canadian currencies.

Following an eight-week rally, equity markets in the US have returned to a more neutral mode as there remain a number of unknowns in the financial system. Bank of America is reportedly under pressure from US regulators to raise funds and is said to have sold off a 5.8% stake in China Construction Bank for approximately USD7.3 billion. Ben Bernanke in a speech yesterday encouraged firms to raise capital independently. Bernanke also noted that the strong US dollar would help curb inflation in the US and the Federal Reserve will gradually withdraw financial support in a “timely” way. The US trade balance is likely to be the major market mover today.

Euro – European Markets
The euro has climbed to 1.36 on the US dollar, significantly higher than last week’s exchange rate as improved risk appetite has supported the single currency. The euro has also climbed 0.4% on the Japanese yen and Canadian dollar while declining against the pound, Australian dollar and New Zealand dollar.

Germany’s consumer price index came in at a flat 0% in April, rising 0.7% on the year. The fact that Easter fell in April this year is partially responsible for the upturn in economic figures which has occurred across Europe and the UK. The euro is currently trading near a seven-week high on the dollar as economists speculate the ECB could keep interest rates on hold next month. Comparatively high interest rates and reserve status are positive for the euro. Reports of recovery from the OECD are also helping the euro maintain support above 1.3 against the US dollar. EMU industrial production figures are due tomorrow.

Other Currencies – Highlights

The Australian dollar weakened against the pound and US dollar overnight as markets stalled after the rapid gains made in the last few days. The Australian dollar surged to a 12-year high against the pound in the last week on the back of improved commodity prices and appetite for risk. This morning the Aussie dollar has dropped back to 1.98 against the pound.

Industrial production in India has fallen by the most in 16 years as the global recession has forced slumps in growth and production. The Indian government has slashed interest rates and increased government spending in an attempt to stimulate the economy although the Indian rupee remains weak against its international currency partners.

Currency exchange rates are likely to be subject to volatility today as interest rate decisions from the Bank of England and ECB are due. The results of “stress tests” on US banks are also due later in the day and this could affect exchange rates for all the major currencies. The Australian dollar reached a 12-year high against the pound overnight as positive figures from the US and buoyant Australian retail sales improved investor confidence.

Pound Sterling – UK Markets

Sterling exchange rates have dipped slightly this morning as investors remain cautious ahead of the Bank of England interest rate decision, although the pound remains supported above 1.5 on the US dollar and 1.13 against the euro. The pound is currently trading at 2.0 against the rising Australian dollar and 2.55 against the kiwi.

The MPC is widely expected to keep interest rates on hold at 0.5% and focus on quantitative easing in the coming months as the UK economy enters a recovery phase. By contrast the ECB is expected to make a reduction to the base rate and we are likely to see some sterling-euro volatility surrounding the announcements this afternoon. This morning Barclays has announced a pre-tax profit rise of 15% for the first quarter of 2009. The profit is largely due to a strong performance in the investment banking arm and comes despite the bank eschewing government bail outs late last year. The Bank of England decision is due at noon.

US Dollar – US Markets

The dollar has experienced choppy trading overnight as markets await the results of stress tests on US banks. This morning the dollar has gained 0.5% against the euro and 0.3% against the pound while also gaining against the yen and Canadian dollar.

US news is set to dominate international headlines today as results of the Obama administration’s “stress tests” on major banks are due. The banking sector is crucial to recovery in the wider economy and the tests are designed to ascertain the level of stability in the major banks. Economists are predicting Bank of America to show the biggest credit shortfall with at least 10 of the 19 banks expected to need additional capital. Treasury Secretary Timothy Geithner reassured markets yesterday by stating that none of the major banks are at risk of insolvency. Official figures also released yesterday showed private sector job losses in April were at their lowest level in 5 months and this supported further market gains. Continuing jobless claims figures and a speech from Ben Bernanke are also due today.

Euro – European Markets
The euro is under pressure this morning, having dipped against most of its currency partners amidst uncertainty surrounding the ECB decision. The euro is currently valued at 1.32 against the US dollar and 0.87 against the pound.

The ECB is widely expected to reduce the base interest rate by 0.25% to 1%. ECB President Trichet has spoken in the past about more unconventional monetary policy and the ECB is expected to move towards quantitative easing to stimulate the eurozone economy. Uncertainty about how and to what extent the ECB will do this is pressuring the euro as quantitative easing is still regarded as a relatively risky policy. Switzerland’s CPI released this morning shows a 0.9% rise in prices for the month of April, bringing annual inflation to -0.3%. German factory orders are also due this morning. The ECB decision, followed by a speech from President Trichet is due this afternoon and we can expect some exchange rate volatility in all the major currencies.

Other Currencies – Highlights

The pound has slid dramatically against the Australian dollar overnight, touching on a 12-year low as positive reports from the US economy and strong Australian retail sales improved confidence of a global recovery. The Aussie has been a major beneficiary of the recent bullish run in equities as improved export and commodity prices bode well for the trade orientated Australian economy. The Aussie dollar also reached a seven month high against the euro ahead of the ECB interest rate announcement this morning. Also released this morning was the Australian unemployment rate which has actually improved, falling from 5.7% to 5.4% for April. By contrast the New Zealand unemployment rate has increased to 5%, from 4.7% the previous month.

The bullish trend in equities and currency exchange rates continues this week as both the euro and pound reached four month highs against the US dollar. Improved prospects of global recovery are encouraging the flow of funds away from safe havens and many of the “riskier” currencies are receiving a boost in exchange rates this week.

Pound Sterling – UK Markets

The pound reached a four-month high against the US dollar yesterday but has trimmed gains to sit just above the 1.5 level. The pound is currently trading above 1.13 on the euro and has lost ground against the Australian, New Zealand and Canadian dollars.

The gradual upward trend in sterling is a reflection of improved growth prospects for the global economy. While the current economic news remains grim, the trade orientated UK economy means sterling is likely to benefit from improved growth prospects. The UK is also viewed as less deeply entrenched in recession than the Eurozone and Japan and this too is supporting the pound. The PMI for the service sector in the UK has climbed to 48.7, from 45.5 the previous month, which is positive news considering the service sector represents 50% of the UK economy. Halifax figures out this morning show house prices fell 1.7% in April, taking the annual rate of decline to -17.7%. There is no further data in the UK today and the Bank of England interest rate decision is due tomorrow.

US Dollar – US Markets

The dollar is trading at lower levels against its major currency partners on the back of improved risk appetite. After touching on four-month lows against the pound and euro yesterday, the dollar is currently trading at approximately 0.66 and 0.75 respectively.

The results of “stress tests” on US banks are due tomorrow and this is likely to be a source of volatility for markets. Of the nineteen banks tested it is expected that Bank of America will need about USD34 billion in new capital while shortfalls at Citigroup and JPMorgan Chase & Co are expected to be more limited. Yesterday Ben Bernanke testified in front of the congressional Joint Economic Committee yesterday and reiterated the Fed’s commitment to the quantitative easing programme. Investors took this as a good sign and market confidence improved, ultimately boosting exchange rates for the higher yielding currencies yesterday. Brent crude remains in the region of USD54 a barrel despite the relatively low spring time demand for the commodity. There is no major data due in the US today with initial jobless claims, another speech by Ben Bernanke and the stress tests results due tomorrow.

Euro – European Markets
The euro also reached a four-month high against the US dollar yesterday on the back of strong equities and positive sentiment in the US. This morning however, the euro has dropped back to 1.32 against the dollar ahead of the ECB interest rate decision tomorrow.

EMU retail sales figures have remained flat for March, declining by 0.6% for the second month in a row. The Purchasing Manager Index for services in the eurozone released this morning showed an improvement in April, climbing to 43.8 after 43.1 the previous month. Plans for Fiat to take over the European operations of General Motors could result in over 10,000 job losses as the merger would create the world’s second largest car firm. The German manufacturing sector is expected to be particularly hard hit. There is no further data in the Eurozone today with the ECB interest rate decision followed by President Trichet’s speech due tomorrow.

Other Currencies – Highlights

The Australian dollar reached a seven month high against the euro overnight as uncertainty over the ECB decision and improved risk benefitted the aussie and pressured the euro. The gradual upward momentum returning to commodity prices is benefitting some of the commodity based economies and the South African rand and Australian dollar have both regained ground recently. Australian retail sales figures have exceeded market expectations, climbing by 2.2% in March. The official trade balance also improved to AUD2.5 billion in March. The official unemployment rate and employment change figures are due tomorrow.

US President Barack Obama has arrived at Downing Street for a meeting with Prime Minister Gordon Brown ahead of the G20 summit. World leaders are gathering in London to discuss ways to resolve the worst financial crisis since the 1930s.

However, rifts have already begun to emerge, with France threatening to walk away from talks if its demands for stricter financial regulation are not met. The summit takes place amid tight security, with the police warning of “unprecedented” levels of protest.

Pound Sterling – UK Markets

According to the latest Experian Footfall UK National Index, consumers continued to desert the High Street in March, with shopper numbers falling by 1.7% across the UK. Wales and the South West were the worst hit regions, with shopper numbers down 7.13%. Only the North East, South East and East Midlands recorded a rise.

The UK purchasing managers index for the manufacturing sector improved significantly in March from a record low in February, data from economics research group Markit Economics has shown.

The manufacturing PMI lifted to 39.1 in March from 34.9 in February. Analysts had been expecting a marginal rise to 35.0. While the figure is still historically low, it suggests belief that a recovery by early 2010 is possible.

Meanwhile, Chancellor Alistair Darling has gone back on plans to increase business rates by 5% from 1 April. Mr Darling said the rise was linked to the Retail Prices Index last year, but RPI inflation had now fallen to zero. The Chancellor said businesses would face only a 2% rise this year and the remaining 3% would be smoothed out over the following two years.

US Dollar – US Markets

US house prices fell by a record 19% in January compared with a year earlier, according to a closely-watched index. The Standard & Poor’s/Case-Shiller Home Price index records prices in 20 of the largest cities in the US.

The index also showed a month-on-month fall as prices fell 2.8% in January compared with December. Earlier this month, figures showed home construction in February rose by a quarter year-on-year, raising hopes the US housing market may be bottoming out.

Euro – European Markets

Retail sales in Germany unexpectedly fell 0.2% on the month in February from January, according to seasonally adjusted figures released by the Federal Statistics Office. The data is yet another signal that household demand in Europe’s largest economy remains depressed, leaving little hopes for a recovery in the near future.

Further bad news from Spain, as car registrations fell 39% on the year in March, Spanish car manufacturers’ association Anfac has said. In a release, Anfac said 76,503 cars were registered in March, down from 124,702 a year earlier. Car registrations fell by 49% on the year in February and by 42% in January. Not even rapidly decelerating consumer price inflation and falling mortgage payments as a result of European Central Bank rate cuts have been able to stimulate Spanish consumption.

Other Currencies – Highlights

Business confidence among major manufacturers in Japan is at a record low, according to a wide-ranging survey by the Japanese central bank. The quarterly Tankan survey of more than 10,000 companies is closely watched in Japan as a key indicator of the health of the country’s economy. Results released by the Bank of Japan show that business confidence among major manufacturers tumbled dramatically, hitting the lowest level ever recorded.

Elsewhere, business confidence in Poland’s industrial sector held up better than expected in March but remained in sharply negative territory, as new orders remained near record lows while job shedding continued. A survey of 300 industrial companies prepared by Markit showed Polish manufacturing PMI rose to 42.2 in March, from 40.8 in February – its third straight monthly increase and considerably better than the 40.9 figure that had been forecast.