Pound Sterling - UK Markets

Sterling has declined against the US Dollar and Euro this morning as RBS has reported the largest loss in UK corporate history. Trading at 1.10 versus the Euro and 1.46 versus the Dollar, the Pound is also facing a week of heavy economic data which will confirm deepening recession in the UK. 

The Government has announced a second tier of economic strategy, including insurance for banks and giving the Bank of England the power to purchase assets, in the latest attempt at stimulating the UK economy. The announcements come as interest rates are approaching zero and the MPC reaches the limits of conventional methods for controlling inflation. This morning RBS has posted losses of over £28 billion and an Ernst & Young think-tank has predicted unemployment will reach 3.4 million by the end of 2010 with the economy contracting 2.7% in 2009. The Right Move house price index has shown prices continue to fall, declining 1.9% in January. This week is laden with important data for the UK. Consumer and Retail Price Indices are due tomorrow with MPC minutes, unemployment and GDP figures later in the week.

US Dollar - US Markets

The Dollar has gained on the Pound and Euro this morning, supported by the further aid for Bank of America and Citigroup and optimism surrounding the inauguration of President Obama this week.

Falling inflation rates and the announcement of rescue packages in the US saw confidence return to equity markets late last week strengthening riskier currencies against the Dollar. Obama's credit relief package is expected to cost around $850 billion with focus in the latter half of the package on distribution of credit to consumers and businesses. Internationally, hopes are high that a reversal of US economic fortunes will stimulate trade and export markets. US Markets are closed today for Martin Luther King Day and the rest of the week is light for US data.

Euro - European Markets

The Euro has weakened against the US Dollar this morning and declined against the higher yielding currencies over the weekend as markets regain some risk appetite. Against the Pound, the Euro is back up to 0.90.

The European Commission has predicted a 1.9% economic contraction for the Eurozone in 2009 with significantly larger contractions to be felt by individual members. Friday's figures showed the Eurozone's trade deficit widening with imports falling a seasonally adjusted 4.7% from October to November. Today is light for Eurozone data with the ECB monthly report due on Thursday.

Other Currencies - Highlights

The Australian and Kiwi Dollars strengthened overnight against the Pound and Dollar, buoyed by the return of investor confidence following the announcement of financial aid packages in the US and UK. Japanese industrial production fell by 8.5% in November, a record decline and Asian equities remain hopeful of US recovery to stimulate demand for Asian imports. The New Zealand consumer price index is out today as is Japanese consumer confidence.