Pound Sterling - UK Markets

Sterling has plunged against the US Dollar, back through the 1.5 level this morning to trade at 1.48 as GDP statistics tomorrow are expected to show further negative results. Against the Euro the Pound has recovered from an all time low but remains hovering just above at 1.05. Sterling has also depreciated 1% against the Australian and Kiwi Dollars as investors are favouring comparatively higher yields at present.

This morning Bank of England deputy Governor Sir John Gieve has admitted the Bank of England knew of ‘crazy borrowing' taking place, but underestimated the severity of risk to the economy. He continued that interest rates were a ‘blunt instrument' in terms of their fiscal impact and maintained that another series of tools were required to stimulate growth. Sterling remains weak as another aggressive rate cut is expected from the Bank next month. There is no significant data from the UK today with third quarter GDP due tomorrow.

US Dollar - US Markets

The US Dollar is down 1% on the Euro but has gained on the Pound overnight after the announcement of a rescue package for the automobile industry.

The Federal Reserve has thrown car manufacturers a $17.4 billion dollar lifeline to be made available at the end of January. The lion's share of funds are expected to go to Chrysler and General Motors as the Federal Reserve has recognised the importance of the automobile industry to consumer confidence and business sentiment within the US economy. The news boosted the Dollar and stock markets. Today is light for US data with personal consumption and annualized GDP figures due tomorrow.

Euro - European Markets

The Euro has continued its ascent this morning, gaining across the board internationally including over 1% against the US Dollar and Pound.

Ireland is to pump €5.5 billion Euros into its 3 largest banks to weather the financial crisis in a move backed by the IMF as a means of kick-starting the global economy. IMF chief Dominique Strauss-Kahn has spoken out in support of government liquidity injections as the IMF has revised growth forecasts down from 3% to 2.2% for 2009. German GFK consumer confidence figures came in at 2.1 this morning, unchanged from last month and the German Import Price index is down to -3.4 from -3.6 in October providing further evidence of declining inflation rates in Europe's largest economy. This week is light for data from the Eurozone and the Euro is likely to remain strong against the Pound amid expectation of further interest rate cuts from the Bank of England in the new year.

Other Currencies

As the Pound is expected to remain weak in the short term, the Australian and Kiwi Dollars could occupy the higher end of ranges. The high yielding currencies have also gained a boost from the Japanese and US interest rate reductions. However, the Australian Dollar remains vulnerable as low commodity prices and diminished export markets threaten Australia's trade based economy. New Zealand GDP figures for the third quarter are due tomorrow and these are likely to show further evidence of economic contraction, following -0.2% growth in the second quarter. 

Japan has posted a $2.5 billion trade deficit for November as the rising value of the Yen caused export levels to contract 26.7% on the year, the highest level on record. Toyota has posted its first profit loss in 71 years and Honda revised profit levels down by 67% this month. The Bank of Japan's monthly economic survey is due out today.