Pound Sterling - UK Markets

The Pound has recovered some of the ground lost last week, when it reached an all time low against the Euro and fell sharply against the US Dollar. Currently sitting in the 1.49 region versus the Dollar and up to 1.16 versus the Euro, Sterling has benefited from improved market confidence in the wake of Obama's plan to create jobs in the faltering American economy. The Pound is also stronger against its other major currency partners.

After suffering from the announcement of record contraction in manufacturing and service sectors last week, Sterling has clawed back ground lost against the Euro and US Dollar. The London FTSE 100 leapt more than 6% this morning on the back of Obama's plan and reports of an expected upturn in the UK economy in the second half of 2009. However, Sterling is expected to remain under pressure till the end of the year. Producer price figures are due out this morning with limited economic data for the rest of the week.

US Dollar - US Markets

The US Dollar has declined overnight against the Euro and European currencies and is down over 2% against the Pound after the announcement of the highest unemployment rate in 34 years. However, a degree of confidence has returned to markets this morning following the announcement of Obama's billion dollar package to increase public works and stave of depression in the US.

Friday brought the non-farm employment figures in the US showing that 533 000 joined the ranks of the unemployed in November. This takes the official unemployment rate to 6.7% and supports the entrenchment of recession in the US which does not bode well for exporting nations. This morning Obama has announced a billion dollar package to create 2.5 million new jobs through government funded public works. Setting aside burgeoning government deficits for the meantime, the plan is to create jobs and stimulate the economy. Commodity prices have risen on the news. This week is also light for US data until Friday when retail sales figures and the producer price index are due. The next Federal Reserve interest rate decision is on December 16.

Euro - European Markets

The Euro has strengthened overnight, up 1.4% on the Dollar and higher against many of the Asian currencies. Stock markets in Europe and Asia have also rallied following the news of Obama's economic stimulus plan.

The Euro begins its second decade on January 1st and many economists are watching with interest what is regarded as the true ‘litmus test' of the Euro. After battling inflation for the first decade, it appears deflation will be the next problem in the Eurozone meaning the ECB may lag behind other central banks in their interest rate cuts. The full extent of recession in the Eurozone is still emerging. German industrial production figures are due today and Trichet is to deliver a speech this afternoon.