Pound Sterling - UK Markets

Sterling is broadly weaker this morning against is major currency partners in a hangover from confirmation of economic contraction on Friday last week.

The Pound gained 0.45% against the Euro, trading at 1.2397 this morning and declined even further against the US Dollar, down 2.44% to 1.5424. Sterling also gained over weakening Australian and New Zealand Dollars, who lost 5.29% and 4.65% respectively as higher yielding currencies suffered while risk-aversion took hold again. Major benefactors have been the US Dollar and the Yen, which gained 6.06% overnight.

The 0.5% contraction in GDP on Thursday, largely comprised of a 1% decline in the manufacturing sector and 1.7% in distribution, has confirmed that recession is nigh. Global equity markets took a downward turn in response to the news with the MCSI opening 3.1% weaker in London this morning. This takes the total loss this month to 29%, the longest period of decline since the 1970's and investors are preparing for an entrenched and prolonged downturn.

UK new mortgage approvals are due on Wednesday.

US Dollar - US Markets

The US Dollar strengthened overnight, against all its major partners with the exception of the Yen as global equities took a plunge and risk aversion found favour again.

The decline in shares is in response to a raft of negative economic data illustrating that global government intervention is not enough to avert a recession. The price of oil continues to fall, reaching $60 a barrel with economists predicting it could go as low as $50. OPEC cut production last week by 1.5 million barrels a day which so far, has failed to peak the price.

New home sales data in the US today unexpectedly rose 2.7%, in stark contrast to the 11.5% decline last month as lower prices have triggered a round of buying. Any sign of recovery in the US economy is welcomed by global markets, as the US position at the epicentre of the global crisis may be indicative of how long the recovery process will be for others. 

US consumer confidence data is due to be released tomorrow and the Fed's interest rate decision is on Thursday.

Euro - European Markets

The Euro lost 2.76% against the US Dollar overnight and Europe's Dow Jones index declined 4.7% as the Eurozone suffered recession fears alongside other major markets.

Shares in UBS and Deutsche Bank, Switzerland and Germany's major banks declined by 6% and the IMF came to the rescue of the Ukraine with a $16.5 billion rescue package to shore up ailing markets. Hungary has also been the latest country to secure IMF assistance, likely to be in excess of $10 billion. The news is unprecedented for an EU nation but has helped steady the Forint after the currency took an almost 20% dive last month.

ECB President Trichet spoke today signalling an interest rate cut for the Eurozone and German consumer confidence data is due tomorrow.