Sterling under pressure
Pound Sterling - UK Markets
The Pound has declined against the Dollar overnight and is also lower against the single currency as losses in the banking sector dominate headlines in the UK. Markets have gained some solace over the level of Government commitment to the bail out but the prospect of rising government debt is anchoring Sterling to the bottom end of trading ranges. The Pound has gained on the Australian and New Zealand Dollars as appetite for risk diminishes ahead of US GDP figures out today.
Yesterday Sterling suffered in response to the news that the Government would increase it's stake in RBS to 84%. Current predictions show the level of taxpayer ownership could rise as high as 95%. Shares in fellow banking giant Lloyds have plummeted 7.4% this morning following news that the bank is yet to strike a deal with the Treasury to insure over £200 billion worth of toxic debt. Despite posting a profit of £807 million in 2008, Lloyds shares have been dragged down after the acquisition of HBOS late last year. HBOS lost £10.8 billion before tax in 2008. UK consumer confidence rose slightly in February, up 2 points from January as the effects of monetary easing are starting to work their way into the economy. There is no further data in the UK today.
US Dollar - US Markets
The Dollar has spiked against the Euro and Pound this morning ahead of annualized US GDP and personal consumption figures to be released later in the day. Investors remain uneasy about what these announcements will bring and this is fuelling risk aversion which is driving Dollar strength. The US Dollar is up over 1% on the Australian and Kiwi Dollars and has gained 0.95% on the Pound.
Growth prospects in the US remain a key indicator of market sentiment and currency exchange rates. An annualized contraction of -5.3% is expected for the fourth quarter following a 0.5% annualized contraction in the third. This represents the drastic decline in the US economy following the market shocks in late 2008. Personal consumption expenditure will also be viewed with interest as consumer spending accounts for 70% of the US economy. The Obama administration has instructed Citigroup to find a private source of capital after committing $45 billion to the bank last year. Shares in Citigroup fell below $2 for the first time in 18 years this week amid speculation that the Bank would be subject to nationalisation. GDP and personal consumption figures are out later in the day.
Euro - European Markets
The Euro remains bearish this morning due to a combination of risk aversion, lower commodity prices and the prevailing market view of economic deterioration in the Eurozone. The Euro is up against the Pound, Australian and New Zealand Dollars although has suffered declines against its other currency partners including the Yen, Canadian and US Dollar.
European equities were in retreat yesterday amid concerns over commodity prices and the economic situation in Eastern Europe. The Hungarian Prime Minister has requested a 180 billion aid package for Eastern Europe which is set to include recapitalization for banks and restructuring of foreign debt. The rapid depreciation of national currencies is also a pressing concern. The Polish Zloty has dropped 29% against the Euro in the last 6 months and other currencies have suffered similar declines. The EMU consumer price index and employment rate are out today along with the consumer price index for Germany.
Other Currencies - Highlights
Australian markets received a boost overnight as strong capital spending figures triggered confidence in the economy to weather global recession. Capital spending in the final quarter of 2008 showed a 6% rise despite expectations of a 3% decline. Capital spending makes up 10% of GDP and this sent the Australian Dollar higher against the US Dollar. The return of risk aversion this morning though has seen the US Dollar recover over 1% on the Aussie. The RBA interest rate decision is due next week.
Canadian stocks have rallied overnight as three major banks posted higher than expected profits. The National Bank of Canada, Royal Bank of Canada and Canadian Imperial Bank of Commerce each gained more than 6% after making profits without the help of government aid, boosting investor confidence in the sector.