Pound Sterling - UK Markets

Sterling has declined against the US Dollar overnight, trading at 1.57 this morning and was also down against the Euro ahead of the Bank of England's Quarterly Inflation Report.

Having finished strong on Friday after the announcement of negative economic data in both the US and Eurozone, gains by Sterling have been erased as trade statistics are due later in the week and inflation report is likely to show a 1.5% contraction in growth. There has been a reduction in LIBOR following the 1.5% interest rate cut, but a significant differential remains between base rates and LIBOR leading Darling to urge banks it was ‘essential' to pass savings on to the public. 

The Euro and the US Dollar were both stronger this morning as equity markets surged following the announcement of China's $586 billion dollar rescue package. The rescue package for China, which accounts for 27% of the world economy, has boosted some of the higher yielding currencies by reviving risk appetite internationally.

Producer Price Index output and inputs are due this morning in the UK with retail sales and trade balance figures due tomorrow. Trade Balance data is likely to induce a range of volatility for Sterling, as it is strongly linked to economic prospects.

US Dollar - US Markets

The US Dollar has gained ground this morning, as equity markets were buoyed by news of the Chinese aid package. The Standard and Poor 500 climbed 1.9% overnight.

The US remains in recession territory as Friday brought the news that job losses were up 240 000 in the last month, taking unemployment to a 14 year high of 6.5%. These losses are spread throughout the service, manufacturing and production sector and are fuelling speculation that interest rates could be cut to 0.5%.

The insurance giant AIG has suffered 3 quarterly losses exceeding 18 billion in the US and may receive an extension of the Federal Reserve Rescue Package of up to $150 billion.

The US is light on data for much of the week, with retail sales figures due on Friday.

Euro - European Markets

Euro is at 0.817 against the Pound, in the midst of a bullish run as recession fears intensify in the UK.

Swiss consumer sentiment fell to a five year low this October as the credit crunch has created fears over unemployment and personal finances and French industrial output fell 0.5% in September, better than the predicted -0.6% decline but worse than the -0.4% for August.

The Yen dropped 1.7% against the Euro and declined against the Dollar as confidence from the China package, meant investors may take advantage of 0.3% interest rates in Japan to buy higher yielding assets.

There is no major data in the Eurozone today but ECB President Trichet is to deliver a speech.