Production Statistics hurt Sterling
Pound Sterling - UK Markets
Sterling remained low against the US Dollar yesterday and is holding at the 1.48 level this morning. Against the Euro the Pound is back down to the 1.14 mark, still under pressure by the weight of negativity surrounding UK economic prospects.
This morning the National Institute of Social and Economic Research announced the UK economy contracted 1% between September and November 2008. Although official fourth quarter statistics will be released in January 2009, it appears the UK economy is contracting at record levels. Industrial production figures yesterday showed a 1.8% decline in the 3 months to October. The manufacturing sector also declined by 2% dragging down annual growth figures. This decline can in part be attributed to the downturn in export markets as the EU accounts for 58% of UK exports, while the US is the single largest market. The OECD has warned economic downturn for the UK would be ‘severe' throughout 2009. There is no further data from the UK today while the CBI Industrial Trends Survey is due tomorrow.
US Dollar - US Markets
The US Dollar is slightly weaker against the Euro and Pound this morning. The Dollar is also down against its Asian and European currency partners in the absence of positive economic sentiment and ahead of rate cut expectations next week.
Despite underlying economic negativity, global equity markets have sustained upward momentum as the continuing prospect of interest rate cuts are supporting the case for economic upturn in mid 2009. Congress may vote today on a $15 billion rescue package for the US car industry and oil is up to $43 a barrel amid reports of production cuts from Saudi Arabia. There is no major data from the US today with trade balance figures due tomorrow.
Euro - European Markets
The Euro has gained against the US Dollar and Pound this morning as the European Commission President, Jose Manuel Barroso has called for a US-EU joint stimulus package to mitigate the effects of recession.
Tomorrow the 27 European Commission member states will converge in an economic summit to formulate a plan to combat recession. German Chancellor Angela Merkel is coming under increasing pressure to adopt a more generous rescue package as Germany is Europe's largest economy with a budget deficit close to zero. Germany also has a large manufacturing sector and would be one of the hardest hit if the recession is to be deep and long lasting. Data released this morning shows Norway's PPI has risen 11.9% in the year to November. There is little more of note today and the ECB's monthly report is due tomorrow.