Pound Sterling - UK Markets
Sterling is relatively unchanged overnight, trading at 1.48 versus the US Dollar and 1.06 against the Euro but could decline throughout the day as markets react to economic data released this morning.
ONS figures show the UK economy contracted 0.6% in the third quarter, revising annual forecasts to 0.3% growth. BBA mortgage approval figures show a deepening of the property slump with the number of new mortgages declining significantly since October. The UK entered recession in mid 2008 and the negative economic outlook combined with aggressive interest rate cuts and high budget deficits continue to fuel the decline of Sterling. With a raft of important data out in the UK and US today, combined with traders jostling for end of year position, we could see some significant market volatility in the coming days.
US Dollar - US Markets
The US Dollar weakened throughout the day yesterday as equity markets turned negative in reflection of general unease over the economic situation.
Yesterday General Motors stocks tumbled the most in a month, erasing the 23% gains made following the provision of Federal funds to the company. The S& P labelled GM with a ‘high likelihood' of bankruptcy and investors replaced their initial confidence with concerns over long term viability of the company. Toyota is also due to reduce their North American payroll after the announcement of profit losses yesterday. Oil declined to $41 a barrel as negative equity markets and the record contraction of Japanese exports highlighted concerns over global growth. While surging demand from developing nations fuelled the price rises earlier in the year, economic contraction is driving the price lower at present. OPEC has announced plans to cut production by 5%. A barrage of top tier economic data is released in the US today including personal consumption and GDP figures.
Euro - European Markets
The Euro remains strong internationally, gaining against the Dollar for the second day in a row amid speculation that the US recession is deepening. Against the Pound the drive towards parity seems to have stalled for the moment, but is likely to resume with further interest rate reductions from the Bank of England in January.
Figures this morning show the EMU current account has narrowed beyond expectations with a 6.4 billion deficit in October, down from 8.8 billion in September. Official figures released in Germany show a 2.7% economic contraction is expected in 2009 as it appears the Eurozone will not be immune from a long and protracted recession. Today is light for Eurozone data and the Euro could strengthen further as market data is likely to batter the US and UK.
Asia Pacific - Highlights
The Australian Dollar gained a boost against the US overnight, supported by higher commodity prices internationally and reached 3 months highs against the Pound. In New Zealand third quarter GDP figures revealed the economy has shrunk by 0.4% for the third consecutive quarter making this the longest recession in 10 years. The figures are likely to prompt a further interest rate reduction to record levels which could devalue the New Zealand Dollar internationally.