Pound Sterling - UK Markets

The Pound has strengthened against the US Dollar and gained against the Asia-Pacific currencies, supported by rising market confidence.

Economists are predicting a 1% reduction in the UK base rate next Thursday, bringing interest rates to 2%. While growth remains the priority of the MPC it is likely interest rates will continue to fall, with some economists arguing they could go as low as 1% in early 2009. Statistics out yesterday showed house prices have fallen at a slower rate in November, 0.4% as opposed to the expected 1.6%, although the weak economy is continuing to pressure the housing market. RBS is now 58% taxpayer owned after the £20 billion government bail out and Indian markets have re-opened this morning after the Mumbai terrorist shocks yesterday. The Indian Rupee and Thai Baht are weaker internationally following political turmoil in India and Thailand. The CBI Distributive Trades survey is out today in the UK and will provide a good indication of business sentiment. Mortgage lending and consumer credit figures are due on Monday.

US Dollar - US Markets

The US Dollar has weakened overnight, trading at 0.77 versus the Euro and 0.64 versus the Pound this morning as rising market confidence increases risk appetite internationally.

The lower Dollar caps of a week of declines against the Pound and Euro as the tentative return of market confidence has boosted the higher yielding currencies. Anticipated rate cuts from the major economies have strengthened growth prospects internationally and oil has risen to $53 a barrel. There is no data out from the US today with construction spending and manufacturing data due on Monday.

Euro - European Markets

The Euro strengthened overnight as markets gained confidence from the EU rescue package and anticipate the ECB rate reduction next week.

However despite the stronger Euro, economic sentiment remains distinctly negative for the Eurozone with data released yesterday showing the downturn is gaining momentum. This is also potentially bad news for Sterling as UK export markets contract. This morning Sweden has confirmed slipping into recession with third quarter GDP shrinking by an expected 0.1%. CPI figures for the Eurozone are out this morning and inflation is expected to have declined sharply in November.