Pound Sterling - UK Markets

The Pound has climbed back to the 1.5 level against the US Dollar this morning although is still sitting close to record lows against the Euro. This week is laden with important data and Sterling is likely to remain under pressure as the UK outlook remains bleak and budget deficits continue to rise.

This morning the UK government has ruled out intervention to stop the slide of the Pound, which has lost around 25% against the Euro since this time last year. As a higher yielding proxy to Sterling, the Euro is being favoured by investors at present for its perceived stability throughout the global economic crisis. This morning John Varley, the head of Barclay's bank has admitted house prices could fall by up to 30% and the UK is only ‘halfway' through the downturn. This is ahead of official unemployment figures on Wednesday which are expected to show a sharp increase. Lack of confidence in the UK economy is extending pressure on the Pound as it appears the recession will not be as short or shallow as initially thought. Today is light for UK data with the Bank of England inflation letter and consumer and retail price inflation figures due tomorrow. A decline in consumer and price inflation is expected as aggressive discounting and VAT reductions make goods cheaper in the run up to Christmas.

US Dollar - US Markets

The US Dollar is broadly weaker this morning ahead of the Federal Reserve interest rate decision and inflation figures due in the US this week.

A 0.5% reduction in the benchmark interest rate of 1% is expected when the FOMC meet tomorrow. The availability of liquidity is still proving a significant barrier to financial recovery and central banks are expected to keep cutting interest rates until we see and upturn in lending and more generous distribution of credit. Global stocks gained this morning as President Bush signalled the financial bail out for auto manufacturers would be swift and decisive. Lengthy or collapsed negotiations at this point could prove a hazard to market confidence and stability. Crude oil has gained, climbing to $46 a barrel ahead of production meeting on Wednesday where cuts are expected. A series of soft data is due in the US today with the consumer price index and FOMC decision likely to be the big market movers tomorrow.

Euro - European Markets

The Euro has become the ‘darling' of currency markets and continued its ascent this morning, buoyed by market nervousness ahead of important figures from the US and UK this week. The Euro is currently trading at 0.89 versus the Pound and 1.34 versus the Dollar.

ECB President Trichet has called for financial discipline and stability this morning as Ireland has announced a €10 billion package to recapitalize the countries financial institutions. The stability of the 15 nation Euro has provided a significant degree of confidence in the currency in recent weeks and leaders have argued for continued recognition of the fiscal rules that govern the Eurozone. Producer and import prices released this morning from Switzerland show a decline for the fourth consecutive month. Today is light for data in the Eurozone with unemployment figures due tomorrow.