Pound Sterling - UK Markets

The morning Sterling has declined against the Dollar and weakened against most of its European and major currency partners as recession fears triggered a wave of risk aversion internationally.

The minutes of the MPC meeting showed a unanimous decision to cut rates, with a 2% cut also considered by the committee. This signals a significant change in attitude from the MPC and indicates further lowering is almost certain to combat deteriorating economic prospects and plunging inflation. Combined with the CBI figures showing a decrease in construction output, economists are predicting a further cut of at 50 basis points next month as the MPC will seek to boost confidence later with further incremental moves.

Markets will be particularly interested in UK retail sales figures out this morning.

US Dollar - US Markets

The FOMC painted a bleak picture of the US economy yesterday, stating they expect economic contraction and flat growth to continue well into 2009. The news triggered a significant downturn for Wall Street, although affects on the US Dollar were mitigated by a rise in the number of risk-averse investors.

After the historical drop in inflation in the US yesterday, Wall Street stocks reached 6 year lows. The S&P fell by 6.1%, the FTSE by 4.8% and declines across Europe and Asia dragged the MSCI world index down by 1.9%. Oil prices continue to fall on deteriorating growth prospects with oil now at $50 a barrel.

The prognosis remains grim for the US automobile industry after Congress could not find consensus on a bail out agreement. The US may find deflation to add to the list of serious concerns next year. Today is light day US data, with the Philadelphia Fed Manufacturing Survey out later in the day.

Euro - European Markets

The Euro has gained on the Dollar and the Pound and is up against most of its Asia-Pacific and European currency partners this morning, benefiting from the data weighing on Sterling and the US Dollar internationally. 

Iceland has secured a $4.6 billion bail out, orchestrated by the IMF with contributions from Finland, Sweden, Norway and Denmark. The funds have the intention of stabilizing, providing liquidity and restoring confidence to the bankrupt economy.

Higher than predicted German Producer Price Index data this morning, is suggesting that inflation remains on the increase in the Eurozone's largest economy, despite Germany heading into recession. There is no major data from the Eurozone due today.