Pound Sterling - UK Markets

The Pound strengthened against the US Dollar overnight, trading just below 1.5 this morning and is up 1% on the Euro to 1.12 following the ECB decision. 

A turbulent day of trading saw the FTSE tumble in response to uncertainty in US equity markets yesterday. Lloyds shares fell by 11% while Barclays and HSBC suffered 8% and 7% declines respectively, wiping out the hard won gains after the recent market shocks. This morning the Pound has strengthened against the Dollar and Euro as Congress rescue packages and ECB rate cuts increased risk appetite internationally. Economists are predicting a return to positive growth in the fourth quarter of 2009 at present as it takes 1-2 years for rate reductions to work their way through the economy. There is no data out in the UK today.

US Dollar - US Markets

The Dollar has suffered against its major currency partners as a barrage of negative US economic data this week has allowed Sterling and the higher yielding currencies to consolidate against the Dollar.

Bank of America has been granted a $138 billion rescue package by Congress this morning which includes $20 billion of financial aid and $118 billion worth of guarantees. Shares in the Bank and Citigroup slumped yesterday ahead of profit losses which are expected to be larger than initially thought. The Philadelphia Manufacturing Survey showed the weakest performance in 40 years and underlying market trends remain bearish. The inauguration of President Obama next week and the announcement of further Congressional rescue packages are likely to be a source of market optimism next week. Economists are predicting upturn in the US economy could begin in quarter 2 at the earliest and is likely to precede recovery in the UK and Eurozone by around 3 months. The Consumer Price Index and Industrial Production Figures are out in the US today. 

Euro - European Markets

The Euro has continued to lose ground against the Pound this morning, trading at 0.88 and 1.32 versus the Dollar. 

Yesterday the ECB cut the base interest rate by 0.5% to 2%. This was widely expected by markets as industrial production and inflation figures have shown the Eurozone economy in rapid decline. Inflation fell to 1.6% in December from 2.1% the previous month prompting predictions that a short period of deflation may occur. Greece, Ireland, Spain and Portugal are the latest members of the Eurozone to be put on credit alert by the Standard and Poor's which added to further pressure on the Euro. Trichet ruled out the further interest rate reductions until March in his accompanying speech. The EMU trade balance is out today.

Other Currencies - Highlights

The New Zealand and Australian Dollars continue to remain vulnerable to international movements in the absence of important economic data. New Zealand House Prices fell 2.7% in December, which weighed on the New Zealand Dollar yesterday and the Aussie lost 0.9% against the US Dollar overnight. The Central Bank of Turkey is due to make an interest rate decision today although consumer inflation figures in the US are likely to be the major market movers.