Pound Sterling - UK Markets
Yesterday was another black day for the Pound as labour market data and the release of the MPC minutes sent Sterling plunging towards parity with the Euro. This morning Sterling has reached another record low against the single currency of 1.06. The Pound also depreciated against the US Dollar, falling away to 1.53 and lost ground against its other international currency partners overnight.
The MPC minutes showing a unanimous vote for a 1% reduction was interpreted by markets as an indication of further rate cuts to come and this sent Sterling into a freefall. The Pound is yet to find a bottom against the Euro and is rapidly approaching parity. Weak labour market data also showed the official unemployment rate rose to 6% in October and this is expected to continue to rise as more companies are forced into redundancies by the credit crunch. Yesterday David Blanchflower predicted unemployment could top 3 million. This morning retail sales figures showed an unexpected rise in November taking year on year growth to 1.5%. On the positive side, there is the view that the very weak Pound is preventing the manufacturing and export sectors of the British economy from further downturn. With no further data in the UK today Sterling is expected to remain under pressure.
US Dollar - US Markets
There have been mixed results for the US Dollar overnight. Gaining nearly 1% against the battered Pound, the Dollar has lost ground against its other major partners as 0.25% interest rates in the US have boosted investment in the higher yielding currencies.
The price of crude declined yesterday following the OPEC announcement to cut production by 2.2 million barrels a day. This morning oil is trading back at the $45 level, as threats to supply were mitigated by IMF statistics which revised global growth predictions downwards. The Philadelphia Fed Manufacturing Survey, regarded as a reliable snapshot of the manufacturing industry, is out today.
Euro - European Markets
The Euro continues its bullish run on the Dollar and Pound, gaining nearly half a percentage point this morning on the Dollar and 1.3% on the Pound to trade at a new record high of 0.94.
Yesterday's figures showed German business confidence fell to its lowest level since 1982 as recession takes its toll on the Eurozone's largest economy. German manufacturing figures have been in decline for five consecutive months and exports have contracted by 0.5% as global demand grinds to a halt. The ECB meets today and may announce measures to facilitate greater interbank lending which is still regarded as one of the greatest barriers to economic recovery. The EMU trade balance is also out today.
The Australian and New Zealand Dollar have gained for the fourth consecutive day against the US Dollar as widening interest rate discrepancies lead investors to favour the higher yielding currencies.
Benchmark interest rates are 4.25% in Australia and 5% in New Zealand compared with 0.3% in Japan and 0.25% in the US and this large discrepancy has supported the Aussie and Kiwi Dollars recently. The Japanese Central Bank meets today amid pressure to lower the value of the Yen which reached a 13 year high against the US Dollar this week. The Bank of Japan's interest rate decision is due tomorrow.