Pound Sterling - UK Markets

Sterling continued to strengthen against the Euro for the fifth day in a row, trading at 1.2555 this morning. The Pound also declined against the Dollar to 1.7528, down by 0.65%

Soft economic data this week has led to minor fluctuations in the Sterling. The EU Commission announced yesterday expectations of a recession in the second half 2008 with speculation real GDP figures could contract by 0.2%. Bank of England MPC member David Blanchflower has broken ranks with his colleagues, labelling them “misguided” for procrastinating in rate cuts and seeking to control inflation while ignoring the country slipping into recession.

US Dollar - US Markets

The Dollar continues to benefit as economic growth slides throughout the major economies. As economic contraction is reflected in the data from Europe, the UK, New Zealand and Australia, the Dollar has been buoyed by their subsequent decline.

The Dollar index touched on 80.25 yesterday, its highest since September 2007.

Lehman Brothers attempted to repair shattered confidence yesterday, after shares plummeted by 45% on Tuesday. Having “quickly derisked and resized” the bank, CEO Richard Fuld was quick to quash fears of collapse, following Bear Stearns. Lehman's announcement was preceded by that of the Korea Development Bank has blaming “differences in transaction terms" for collapsing negotiations.

Euro - European Markets

The Euro continues to slide at present, having fallen to $1.3960 against the US and 0.7968 against the Pound.

The EUR/USD rate dropped to a one year low yesterday amid speculation that the European economy could slow at a faster rate than the US and force the ECB into interest rate cuts. Negative data this week has indicated the German economy facing recession, if the 0.5% contraction in the second quarter is followed by the expected 0.2% contraction in the third.  Spain is also teetering on the brink of recession.  

Trichet's speech yesterday voiced ECB predictions the European economy will probably stagnate over the third quarter. Trichet reiterated growth and inflation concerns as well as the ECB target of taming inflation and highlighted lower oil prices as the potential key to economic stimulation as cheaper energy provides relief for household budgets. He urged oil producing nations to “act responsibly” yesterday in a thinly veiled jab at the OPEC nations decision to cut production earlier this week. Lower energy costs in Spain have seen inflation fall back to 4.9% from a previous 15 year high of 5.3%.

RBNZ Slashes Rates

The NZ Dollar dropped to its lowest level since 2006 after Reserve Bank Governor Allan Bollard lowered interest rates yesterday. The NZD was trading as low as 64.95 U.S. cents before recovering to 65.11 cents yesterday.