Pound Sterling - UK Markets

Alistair Darling is expected to announce in next week's budget that government debt will reach £175 billion, significantly more than the £110 billion predicted in the November pre-budget report.

Despite the surging government debt levels, Sterling has received a boost in currency markets, hitting a 6 week high against the Euro and a three month high against the US Dollar yesterday. Housing market sentiment has reached the highest level in 13 months and hopes of recovery in the property sector have impacted favourably on the Pound.

Against the Euro, the Pound is currently trading at an interbank rate of 1.13 and support above 1.10 could continue with the introduction of quantitative easing in the Eurozone. There is no major data in the UK for the rest of the week with the annual budget and Bank of England minutes due next week.

US Dollar - US Markets

Consumer inflation figures have turned negative in the US for the first time in 12 months with a 0.1% drop recorded in March, taking annual inflation down 0.4% on the year. This decline is largely due to recent volatility in food and energy prices with consumer prices actually up 1.8% on the year.

The Obama administration has announced plans to reveal details of the ‘stress tests' undergone by banks in an attempt to test their financial solvency and restore market confidence in the banking sector. The Dollar is holding strength this morning as major announcements due in the US today have left market sentiment muted and risk aversion high on the international agenda. Jobless claims, housing statistics and the Philadelphia Fed manufacturing survey are out later in the day. 

Euro - European Markets

Axel Weber, member of the governing council at the ECB has announced the ECB will implement ‘non-standard measures' in an attempt to stimulate the Eurozone economy. Economists are predicting the ECB will follow the Bank of England's measures towards quantitative easing and support for the single currency weakened throughout the day yesterday.

Industrial production figures out this morning show an 18% decline on the year with a 2.3% contraction for the month of February. Recent figures also show Germany's economy contracting at a faster rate than the UK's and this is likely to have repercussions for the rest of the region. The perception that the ECB is behind the curve when it comes to fiscal policy is continuing to plague the euro and this morning the Euro has declined against the US dollar and its major Asian currency partners. The EMU trade balance is out tomorrow.

Other Currencies

GDP in China has fallen to 6.1% in the first quarter of 2009, the lowest level since quarterly statistics began in 1992. This is largely due to a reduction in exports and the Chinese government is attempting to stimulate domestic demand to maintain the country's 8% growth rate. Investment levels and industrial demand have increased in China in recent months, suggesting that the government's 4 trillion yuan rescue package is working to stabilize the economy. Economic contraction in China weakened the Australian and New Zealand dollars overnight although the New Zealand dollar has recovered over 1% against the pound this morning.