Pound Sterling - UK Markets

Sterling is trading at 1.44 against the US Dollar and 1.12 versus the Euro having strengthened ahead of the Bank of England interest rate decision.

The Bank of England is expected to cut the base rate to a new historic low of 1% this afternoon. The MPC decision will be weighed against Britain's plunging inflation rates, thousands of jobs losses and increasingly grim economic climate. The NISER predicted a -2.7% contraction for the UK economy and the IMF has claimed Britain will be one of the worst hit by the current recession. While significant monetary easing has been undertaken alongside rate reductions, in future the Bank will have to look to increasingly unconventional policy measures. Icelandic investment group Baugur has become the latest high profile victim of the credit crunch after filing for bankruptcy protection yesterday. Baugur owns shares in high street giants Hamley's, Iceland and House of Fraser and is expected to fold with debts of over £1 billion. The rate decision is to be announced at noon and is likely to be a source of volatility for the Pound.

US Dollar - US Markets

The Dollar has remained largely unchanged overnight, down against the Pound and Australasian currencies this morning.

Equities suffered yesterday after it was revealed the US private sector slashed 522,000 jobs in January. Today a series of soft data is released in the US but markets are likely to be dominated by events in the UK and Europe. The US unemployment rate and non-farm pay roll figures are out tomorrow.

Euro - European Markets

The Euro is down to 1.28 versus the US Dollar and 0.88 against the Pound as current exchange rates reflect uncertainty surrounding the ECB decision.

Last month ECB President Trichet signalled rates would not be cut further until March although falling inflation and rising unemployment in the Eurozone are mounting pressure on the ECB to act. EMU retail sales announced yesterday have fallen flat, showing a -1.6% contraction for the year to December. Deutsche bank has suffered its first annual loss, posting a €3.9 billion write down for 2008 and Swiss Re has gained a £1.8 billion cash injection from investor Warren Buffett. This news led to a negative day for European equities yesterday from which they have still not recovered. Norway's national bank has cut interest rates to 2.5%. The ECB decision is this afternoon to be followed by a speech from President Trichet.

Other Currencies - Highlights

The Australasian currencies suffered overnight as worse than expected employment figures in the US triggered a round of panic selling. The New Zealand unemployment rate has risen to 4.6% as global recession is taking its toll on the minor economies through a downturn in tourism, trade and international investment. A monetary policy statement from the Reserve Bank of Australia is due tomorrow and this is likely to include scope for further interest rate reductions and government cash injections. Qantas shares fell 18% in trading yesterday as the outlook for tourism figures remained bleak.