Pound Sterling - UK Markets

Sterling foreign exchange rates have pared gains this morning, dropping back to 1.66 against the US dollar and 1.17 versus the euro as the FTSE has opened lower.

The Bank of England is likely to downgrade economic forecasts for growth this year, which could affect sterling sentiment as the burgeoning budget deficit is of increasing concern to investors. Last week bought positive signs for the UK economy and the Bank opted to expand QE by another £50 billion. RBS and HSBC posted large profit losses in the second quarter and this has undermined the pound to an extent. This week sterling exchange rates could be subject to volatility after the release of UK trade statistics.

US Dollar - US Markets

US foreign exchange rates are relatively strong this morning, maintaining their high levels following Friday's unemployment data. The greenback is currently trading at 0.70 versus the euro and 0.60 versus the pound while declining against the yen, Australian and kiwi dollars.

US unemployment rates have fallen by 0.1%, coming in at 9.4% on Friday. In combination with figures that showed a small contraction in non-farm payrolls, this was taken as positive news for the US economy as declining unemployment goes hand in hand with future growth. ISM figures also show the manufacturing sector shrank at a slower pace in July. There is no major US data today.

Euro - European Markets

Foreign exchange rates for the euro have dropped off sharply against the US dollar, trading at around 1.41 this morning. The single currency is weaker against the yen, Australian and New Zealand dollars, while rising to 0.85 against the pound.

The Sentix investor confidence survey has shown improved results in the eurozone, with confidence rising to -17. Industrial production in France rose more than expected in June and confidence has improved, adding fuel to the eurozone recovery prospects. There is no further data in the eurozone today with German consumer and wholesale price indices released tomorrow.

Other Currencies - Highlights

Strong mortgage data boosted Australian foreign exchange rates overnight as figures showed June mortgage lending rose for the ninth consecutive month. The Aussie and kiwi dollars rose sharply against the pound on Friday after weak corporate earnings from RBS undermined sterling support. In early trading this morning the higher yielding currencies have continued to gain on the pound and US dollar.

The Chinese property sector is showing positive signs for growth, with property sales surging 60% in value in the first seven months of 2009. Home prices have also risen 1% on the year, leading economists to speculate over the danger of a property market bubble in the Chinese economy. There is no major data released in China today.