Pound Sterling - UK Markets

The Pound is gaining against the US Dollar this morning, currently trading at 1.43 after reaching a two week low yesterday. The release of MPC minutes indicating that quantitative easing was likely damaged the value of the Pound, although it was the Euro that came under pressure over concerns surrounding Eastern European economies. The Pound-Euro exchange rate is currently 1.13 and Sterling has gained against its major foreign currency partners.

Having revealed an 8-1 vote in favour of a 0.5% reduction in the base rate, the MPC minutes also indicated that quantitative easing is imminent as the Bank will buy gilts and other securities to increase the supply of money into the economy. With interest rates effectively at zero, the Bank is seeking more unconventional methods of unlocking credit markets and alleviating toxic debts. Sentiment regarding Sterling has turned marginally positive as markets focus on bad news coming from the Eurozone and Asian economies. This has allowed Sterling to stage a minor rally against the Euro and Japanese Yen. Money supply data is out in the UK this morning and retail sales figures are due tomorrow.

US Dollar - US Markets

The Dollar has declined over 1% against the Euro this morning as fears abate over European exposure to bad debts and the US stimulus packages revives appetite for risk. The Dollar is also down over 1% on the Australian and Kiwi Dollars and is down to 0.69 against the Pound.

Yesterday's figures in the US revealed housing starts and new building permits dropped to record lows in January along with industrial production figures which contracted 1.8% for the month. This signals a weak start to 2009 after the US economy contracted 3.8% in the final quarter of 2008. President Obama released details of a $275 billion housing package which is an attempt to address the root of the financial crisis and prevent the rising number of foreclosures on American homes. An estimated 400,000 home owners lost their homes in the US last year. This comes in the same week as the $787 billion rescue package, yet market response remains uncertain as details and growth prospects are unclear. The Federal Reserve have also announced they expect unemployment to rise to over 8.5% and projected long-term interest rates at 2%. The FOMC minutes are released today along with the Philadelphia Fed and jobless claims figures. 

Euro - European Markets

The Euro has strengthened this morning, gaining over 1% on the US Dollar to 1.26 after falling to its lowest rate since mid-November yesterday. The Euro-Sterling exchange rate is currently at 0.88 and the Euro has advanced on the Japanese Yen and New Zealand Dollar.
The Euro came under pressure yesterday as news of the deteriorating economic situation in Eastern Europe raised fears over the exposure of Western European banks. The Polish Zloty, Czech Koruna and Hungarian Forint have all reached multi-year lows against the Euro and major European banks warned of pending job cuts despite Societe Generale posting a fourth quarter profit. European equities gained for the first time in 8 days on the back of better than expected profits released from Nestle and BNP Paribas yesterday. The ZEW survey for Switzerland is out this morning and EMU purchasing manager indices for manufacturing and services are due tomorrow.

Other Currencies - Highlights

The Australian Dollar is under pressure this week amid news that Moody's is to review the credit rating of the Australian Government. The Standard and Poor's has previously claimed Australian banks are ‘well placed' to withstand the downturn yet recent economic data from Australia has been worse than expected. The Bank of Japan left interest rates unchanged yesterday at 0.1% and the Yen fell to a 6 week low against the Dollar with the passing of the Housing Bill in the US Senate. Consumer Price index figures for Canada are due tomorrow.