Pound Sterling - UK Markets

Sterling currency exchange rates gained over 1% against a weaker US dollar and fell further against the euro yesterday following the Bank of England's quarterly inflation report. The pound is currently trading at 1.65 against the US dollar and 1.16 against the euro.

Yesterday's inflation report produced downbeat forecasts, limiting speculation that the Bank will raise interest rates by year end. In combination with news that unemployment had reached a 15-year high in the UK, this painted a negative picture of the economy, affected sterling sentiment to the downside. However this negative data is in accordance with negative growth in the second quarter and the second half of 2009 could be more positive for the pound.

US Dollar - US Markets

US dollar currency exchange rates tailed off against the euro and pound overnight, as risk appetite was boosted by the FOMC decision in the US. The greenback is currently weaker against all its major currency partners, valued at 0.70 versus the euro and 0.60 against the pound.

Yesterday the FOMC of the Federal Reserve announced they would seek to end quantitative easing by the end of the year, though interest rates are expected to remain low for an "extended" period of time. Markets took this as a positive assessment of economic recovery, which stimulated international appetite for risk. The US budget deficit also reached a record high of USD1.27 trillion. The import price index, jobless claims and retail sales figures are due in the US today.

Euro - European Markets

Euro currency exchange rates have continued to rally, climbing against the yen and US dollar, while declining against the pound, Australian and New Zealand currencies.

Euro area GDP figures released this morning show the region underwent a -0.1% contraction in the second quarter of 2009. In a surprise for markets, Germany's economy grew 0.3% over the same time period and France's economy also expanded. This triggered a 0.6% advance for the euro and led to speculation that the eurozone may be through the trough of recession. The euro consumer price index is due tomorrow. 

Other Currencies - Highlights

Australian currency exchange rates have received a boost, as risk appetite rallied following positive data from the US and eurozone. The Fed's assessment that recession is "levelling out" drove the Aussie and Kiwi currencies to their second day of advances against the US dollar as investors sought out the higher returns on their investment. The Australian dollar rose 0.7% against the US dollar while the Kiwi currency climbed by 0.6%.