Pound Sterling - UK Markets

The Pound slumped against the US Dollar yesterday following the publication of CPI Inflation data, but has recovered overnight to trade once again in the vicinity of 1.49. Sterling also strengthened over the Euro, with recession prospects in the Eurozone starting to weigh on the single currency. 

Yesterday brought news that the UK Consumer Price Index for inflation has declined to 4.5% in October, down from 5.2% in September. This is largely due to the drop in energy prices globally, which have more than halved since July and inflation is expected to continue to decline through to Spring. Although still more than double the official target of 2%, declining inflation gives the MPC more leverage with regard to rate cuts to stimulate the economy. Deflation is likely to prove the next source of problems for the Treasury and MPC in 2009.

In the UK today, Lloyds TSB shareholders are to vote on the proposed HBOS merger and MPC minutes released this morning will affect the value of the Pound. The degree of consensus in the decision is important, with hawkish decisions often interpreted positively by markets.

US Dollar - US Markets

The US Dollar is retaining value due to the prevalence of risk aversion amongst investors and gained slightly overnight against Sterling and the Euro yesterday.

Woes of the automobile industry are weighing on stocks in the US at present as Ford, GM and Chrysler have asked Congress for $25 billion portion of the $700 billion rescue package. US Consumer Price Index for inflation is due out later today with economists predicting a 0.8% drop in October, which would be the largest since 1949.  

Minutes from the Federal Open Market Committee are also released today and could steal market attention away from the CPI. With the minutes likely to provide an insight into the Fed's preferences moving forward, they could be significant for the tone of equity markets later in the day.

Euro - European Markets

The Euro is in the midst of a bearish run against both Sterling and the US Dollar as weak economic data continues to emerge from the Eurozone. 

Spain's Finance Minister this morning conceded the Spanish economy is likely to contract in quarter 4, following a 0.2% contraction in quarter 3. This comes after figures showing Italy, Germany and the Eurozone officially slipping into recession, the first since the inception of the 15 nation zone in 1999. There is no major data due from the Eurozone today.