Pound Sterling - UK Markets

The Pound continues to enjoy its recent bounce against the Euro, trading at 1.11 this morning although it has slipped back to 1.49 against a stronger US Dollar.

Despite negative data released on Friday, the Pound remained strong over the weekend. Industrial production fell by 2.3% in November, taking the yearly decline to 6.9% and it is now estimated the UK economy has contracted 1.5% in the fourth quarter. Sterling has reached its highest level in nearly a month against the Euro after nearing parity last week and has risen 7.1% on a trade weighted index. Support for the Pound is coming from distinctly negative sentiment in the Eurozone and market focus on the pending ECB interest rate decision. There is no data released in the UK today with retail sales and trade balance figures out tomorrow.

US Dollar - US Markets

The Dollar is stronger across the board internationally, gaining on its major currency partners as unemployment figures dampen expectations of a quick recovery from the economic crisis. The Dollar is trading at 0.66 versus the Pound, 0.74 against the Euro and has gained over 1% against the Australian, New Zealand and South African currencies.

US unemployment figures released on Friday were distinctly negative as expected, showing a 524 000 rise in unemployment in December. This takes the official unemployment rate to 7.2% and shows over 1.5 million jobs have been lost over the last 3 months. Effects on the US Dollar were mitigated by heightened risk aversion internationally and the economic outlook is expected to stay negative until mid 2009 by when fiscal policy and lower interest rates may provide some relief. There is a series of US Data out this week including the crucial combination of industrial production, retail sales and consumer sentiment. Obama's inauguration next week could provide a source of strength for the Dollar and balance of trade figures are out tomorrow.

Euro - European Markets

The Euro has lost ground over the last week, trading at 1.33 versus the US Dollar this morning and 0.89 against the Pound.

The Euro has declined on speculation that the ECB will reduce interest rates when it meets on Thursday. The IMF's Managing Director Dominique Strauss-Kahn warned yesterday that Europe is “underestimating” the needs of its economy and the Euro sunk to a one month low against the Yen. While the ECB initially shunned the rapid reductions favoured by the Federal Reserve and Bank of England, contraction in the European economy is forcing the ECB into revising its interest rate policies. The current interest rate is 2.5% and a 0.5% cut is expected. ECB President Trichet is to give a speech today.

Other Currencies - Highlights

The Australian and Kiwi Dollars both lost ground against Sterling over the weekend despite negative industrial production data from the UK. This can be seen as a market correction following the overselling of Sterling towards the end of 2008. The Bank of Canada Business Outlook survey is due tomorrow.