Pound Sterling - UK Markets

Sterling fell 3% against the US Dollar and 2.5% against the Euro yesterday as negative manufacturing and mortgage data confirmed the bleak economic situation in the UK.

The FTSE declined 5.2% yesterday and the Pound remains under pressure this morning as markets anticipate construction and service sector PMI's. HSBC, Credit Suisse, Halfords and Aston Martin became the latest leading companies to announce job losses and rising unemployment combined with weak manufacturing and service data could keep the value of the Pound low for some time. Weak figures in construction and service PMI's are likely to increase the chances of a 1% rate cut by the Bank on Thursday.

US Dollar - US Markets

Markets suffered another day of losses in the US yesterday as negative economic data blighted the days trading. However the Dollar gained slightly against its major currency partners as low investor confidence favoured a return to risk aversion.
The National Bureau of Economic Research announced yesterday that the US entered recession in December 2007. Taking into account a combination of factors, rather than just the technical 2 quarters of consecutive contraction, the NBER is widely regarded as a force in defining economic cycles. The Dow lost 7.7% following the announcement and international markets declined as the US economy remains the key market driver at present. US manufacturing output is currently falling at the fastest rate since 1982 and oil dropped back to below $47 a barrel. Bernanke signalled that further interest rates cuts are ‘certainly feasible' and speculation is rife that the US will follow Japan's trend towards 0% interest. The next Federal Reserve decision in the US is due on December 15.

Euro - European Markets

The Euro is down against the US Dollar trading at approximately 1.26 this morning and has gained slightly on the Pound, currently valued at 0.84.

This morning Swiss CPI has showed a sharp decline in November in line with falling inflation rates throughout the Eurozone. This is increasing speculation of a sharper rate cut to be made on Thursday by the ECB. Of note for markets this morning is the EMU producer price index.

Other Currencies

The Australian Reserve Bank cut interest rates to a 61/2 year low yesterday of 4.25%. The Bank of Japan decided to maintain interest rates at 0.3% overnight, choosing instead to focus on maintaining cash flow for business and the Reserve Bank of New Zealand is due to make an interest rate decision later in the week.