Pound Sterling - UK Markets

The Pound had gained 0.48% against the Euro this morning, trading at €1.2454 and was down 0.46% to against the US Dollar to $1.7587.

The UK Producer Price Index data released yesterday showed inputs fell by 2% and outputs by 0.6%, in a piece of news that will be welcomed by the MPC. A reduction in PPI figures indicates inflation may be nearing its peak, with lower oil prices and a slowing economy helping to dampen down the spiralling rates. Slower growth will help steer inflation back towards target in the medium term giving the MPC more room to manoeuvre with rate cuts in the last quarter or early 2009.

The British Retailers Consortium reported yesterday that retail sales fell 1% for August, largely due to low consumer confidence and restricted household budgets. The Royal Institute of Chartered Surveyors also showed mortgage levels down 70% from last year as consumers are hit from all angles by increased energy prices, stricter credit and higher unemployment.

Industrial and manufacturing production data from the UK is due to be released today.

US Dollar - US Markets

The US Dollar reached a one year high against a basket of currencies yesterday, supported by a decline in the Euro as well as gold and oil prices. This morning the dollar is trading at $1.7587 against the Pound and $1.4118 against the Euro

Federal investigations reveal overnight the extent of the crisis in the Freddie Mac and Fannie Mae mortgage lending institutions, as the “house of cards” accounting systems, show the organisations had been lending without adequate capital cover.

The U.S. Redbook is due to be released at lunchtime today.

Euro - European Markets

Further weakness is showing in the Euro which has declined against most of its major currency pairs including the Yen, Australian and New Zealand Dollars. Down 0.99% against the US Dollar to $1.4118 this morning the Euro has lost 12% since the middle of July.

Local Currency

In other major currencies, the Yen rose against the Euro for the second day in a row and also traded at 2 year highs against the NZ and Australian dollars. Current accounts and trade balance figures are due from Japan today as well as retail sales and home loan data from Australia which could induce some market volatility.

And in other news, small towns in the UK wanting to opt out of the credit crunch are doing so with the creation of local currencies. Totnes and Lewes have created their own version of the pound, designed to keep money in local communities and bolster local sales. As they are linked to Sterling on a one for one basis, the local currencies cannot escape fluctuations in the Pound but they do engender a feeling of community and encourage support for local business.