Pound Sterling - UK Markets

Sterling has gained marginally overnight against most of the major currencies, despite the release of a Reuters study confirming recession in the UK. The Pound is up against the Euro to 1.2934 but down to 1.7474 against the US Dollar and Sterling has also gained against Australian, Canadian and New Zealand Dollars.

This week a glut of domestic data is due and is expected to provide evidence of recession in the UK. Business confidence is at record lows and the government may hasten public spending to breathe life into the ailing economy. This of course comes in addition to reaching deep into their pockets for successive bank bail outs in recent weeks.

MPC minutes on Wednesday will provide an insight into the likelihood of a further interest rate cut by year end and CBI trends are due tomorrow indicating business confidence over coming months. Overnight LIBOR rates have declined but ‘credit crunch' mentality is dominating the tone of markets at present.

UK economic growth is also due and is expected to occupy negative figures as the impacts of recent rate cuts and inflation drop offs will not be seen until 2009.

US Dollar - US Markets

The Dollar strengthened over the Euro overnight and is up against its major currency partners, again benefiting from its safe haven status.

Figures in the US also show the economy is entering two quarters of negative growth, and like the UK, the economy is waiting to feel the Federal decisions in recent weeks flowing through to consumers.

Bernanke is due to testify this afternoon and the Washington Post Consumer Confidence Survey is due tomorrow. 

Euro - European Markets

In contrast to the Pound, the Euro declined against most of its major currencies overnight, down 0.58% against the US Dollar to 1.3509 and 0.22% against the Pound.

European markets have opened stronger this morning as Trichet commented European banks are “on the path to normalization”. This is despite Christine Legard, the French Finance Minister, calling for an audit of the nations banks after the Chairman of Caisse d'Epargne resigned over the loss of €600 million in a trading incident.
The MCSI Rallied 4.4% last week, trimming losses to 40% after the injection of €2 trillion from national governments to underwrite mortgages and ease lending in the banking sector.

The German Producer Price Index is due in the Eurozone today and the Purchasing Index for Manufacturing and Services are due for the EMU later in the week.