Pound Sterling - UK Markets

The pound declined against the US dollar yesterday as better than expected jobless data in the US boosted hopes of a tentative recovery. This fuelled demand for the dollar at the expense of the pound and euro. Sterling has fallen away from 3 month highs against the dollar to trade in the region of 1.48 this morning but continues to gain on the euro, trading at the interbank rate of 1.13 early this morning.

David Miles, chief economist at Morgan Stanley in the UK has added to the positive chorus, noting that recession may ease as quantitative easing and other government initiatives begin to trickle down to the wider economy. Miles is set to replace David Blanchflower on the MPC in June. However, several large question marks remain over the UK economy and sterling exchange rates remain subject to international appetite for risk. The Council of Mortgage Lenders has cited negative equity as a factor in the low property market turnover and sentiment towards sterling is likely to remain muted in the lead up to next weeks budget. There is no data out in the UK today.

US Dollar - US Markets

The US dollar strengthened broadly overnight as better than expected jobless data boosted hopes that the pace of recession may be easing. The Philly Fed manufacturing survey also showed the rate of decline is slowing although both housing starts and new building permits continued to fall on their way to record levels in March.

This news provided fuel for a dollar rally against its international currency partners as it boosted hopes we are beginning to see the ‘green shoots' of recovery in the US. This morning search engine Google has announced strong profits for the first quarter of 2009, rising to USD 1.42 billion which is significantly better than expected given the downturn in advertising spending as a result of recession. JP Morgan announced better than expected profits yesterday, sending the FTSE 100 to close 2% higher and Citigroup is to release company earnings later in the day. This, combined with a speech by Ben Bernanke could have a positive impact on Wall Street and international markets.

Euro - European Markets

The euro is broadly weaker this morning following Trichet's comments that the ECB must do everything possible to restore corporate confidence, increasing speculation of further rate cuts and quantitative easing in the Eurozone. The euro continues to decline against the pound but has found support at the 1.3 level versus the US dollar.

This morning Sony Ericsson has announced 2,000 job cuts in an attempt to save EUR400 million after an extremely difficult first quarter. This follows Nokia's announcement yesterday of a 90% profit fall in the first quarter of 2009 and both companies expect to face challenging markets throughout 2009. The EMU trade balance is released this morning with the producer price index for Germany due early next week.

Other Currencies - Highlights

News that China's growth rate has fallen to 6.1% prompted a return to safe haven currencies and this sent the Australian and New Zealand dollars lower against their international currency partners overnight. The Aussie and Kiwi dollars both sunk to 2 month lows against the Japanese yen. Australian growth and budget forecasts due in May are now expected to be significantly worse than predicted and New Zealand inflation rates have fallen to 3% as consumer demand wanes in the midst of global recession. This is prompting speculation that the RBNZ may leave interest rates unchanged again this month. The Australian import and export price indices are out this morning.