The US Dollar has weakened overnight following reports the US government may nationalise major US banks as a result of the financial crisis. Sterling has staged a minor rally following the publication of retail sales figures for January and EU leaders met over the weekend to discuss economic strategy ahead of the G20 summit in London in April.

Pound Sterling - UK Markets

Sterling has strengthened overnight, climbing to 1.45 against the US Dollar and gaining 1.6% on the Yen amid news that the US government may nationalise major banks. The news fuelled a round of risk aversion but this failed to strengthen the traditional safe havens and Sterling gained on its major currency partners overnight.

PM Brown has announced a £14 billion credit injection into Northern Rock and the bank is to start lending again, expected to take on £5 billion worth of mortgages this year. This is a reversal of earlier government decisions and comes tempered with the warning that banks should end risky speculation and return to their more traditional role as ‘stewards' of people's money. Retail sales figures on Friday boosted the Pound as they rose by 0.7% for the month of January taking annual sales up by 3.6%. However this comes at a time when retail analyst Experian predicted 10% of high-street stores will be empty by the end of February and more solid trends may be visible in quarterly statistics. Nationwide housing prices are released in the UK today with new mortgage approvals out tomorrow.

US Dollar - US Markets

The Dollar has weakened for the third consecutive day on speculation that the US government may bail out major banks even further. The Dollar is down 0.74% on the Canadian Dollar and has also declined the Pound, Euro and other major currency partners.

Dollar weakness comes after Christopher Dodd, Chairman of the Senate Banking Committee announced that nationalisation of some banks may be necessary. Wall Street and equity markets fell to multi-year lows and the Dollar declined against the Euro and Yen. The Philadelphia Fed survey on Friday showed manufacturing has slumped to a 19 year low and a survey of business economists has shown the US recession is the worst in three decades. Consumer spending accounts for 70% of the US economy and this is expected to decline by 2.3% this year. There is no data out in the US today.

Euro - European Markets

The Euro has also rallied against the US Dollar, currently sitting at 1.28 after attempting to break 1.30 overnight. The Euro has also gained on the Yen and is currently trading at 0.88 against the Pound.

Leaders of Britain, France, Germany and Italy met over the weekend to formulate a position ahead of the G20 meeting to take place in London in April. Tighter market regulation and an end to risky speculative investments are expected to top the agenda. European leaders also agreed the IMF's emergency fund for debt stricken countries should be increased to more than $500 billion. ECB President Trichet is to give a speech today.

Other Currencies - Highlights

The Australian and New Zealand Dollars have appreciated for the fourth consecutive day against the Dollar on speculation that the US Government is to increase its stake in the major US Banks. The Yen also declined amid speculation over the deteriorating Japanese economy expectations that export demand will continue to slump. This weakness could eventually undermine the safe haven status of the Yen. Minutes from the Bank of Japan's February meeting are released today. The Canadian Dollar has gained against the US following weaker American equities and reports that Canadian core inflation fell by 0.4% in January. Canadian retail sales figures are due today.