Pound Sterling - UK Markets

UK GDP data this morning revealed a -0.5% contraction in the economy for the third quarter 2008, the first since 1992 increasing likelihood of a recession into 2009.

The Pound is down 1% against the Euro overnight to 1.2527 and gained 0.18% overnight against the USD to 1.5843.

The decline in Sterling is reflective of domestic conditions. Food sales in Britain fell for the first time in 22 years and retail sales grew by a mere 0.1% taking annual growth down to 2.3%. The squeeze on consumers at both ends of the scale, through unemployment and increasing CPI, means retail figures are unlikely to recover and the widely accepted prospect of recession throughout 2009 is capping the value of Sterling at present.

Expectations continue for the Bank to cut interest rates in November.

US Dollar - US Markets

The Dollar has suffered declines overnight as stocks responded to fears over an entrenched global recession. The MCSI index fell by 4.3% and the FTSE by 8.1% as recession in the UK appeared imminent and House prices in the US have continued to decline for the 6th consecutive month.

Greenspan is reportedly “shocked” at the scale of risky lending he presided over and OPEC have agreed on a cut in production by 1.5 million barrels a day, made nervous by the lowering demand a global recession will incur. 

Euro - European Markets

The Euro is up 1% to 1.2646 against the US Dollar and 1% against the Pound to 1.2527 this morning.

Yesterday the Danish central bank unexpectedly raised interest rates to boost the Krona, from 5% to 5.5% in a bid to stem the flow of foreign investment flooding out of the country. This is the fourth time since February 2006 that Nationalbanken have operated independently of the ECB as risk averse investors disrupt emerging economies across the world with their flight to quality, in particular to US Dollars.  Eastern Europe is feeling a similar pinch and there have been significant fluctuations in the Polish Zloty and Hungarian Forint this week.

News today shows Spanish unemployment has hit a 4 year high of 11.3%.