Pound Sterling - UK Markets

The Pound is down nearly 3% against the US Dollar, trading at 1.39 this morning and has slumped against its other international partners as market confidence was battered by RBS profit losses yesterday. Sterling has also slipped back to 1.07 versus the Euro.

The Pound reached a 6 year low versus the Dollar and RBS shares closed down 67% yesterday as the largest profit losses in corporate history shattered investor confidence. The British government announced £100 billion worth of financial aid and that it would increase its stake in RBS to 70% yet this did little to calm nerves as government debt continues to spiral. This morning RBS shares have recovered 17% of yesterday's losses but the tone of equity markets remains negative. December inflation has fallen to 3.1% from 4.1% in November on the back of lower energy prices and heavy discounting from retailers. This will have a bearing on MPC decisions in future and minutes of the last meeting are published tomorrow. The European Commission yesterday forecast the UK economy would contract 2.8% in 2009. Fourth quarter GDP figures are out on Friday.

US Dollar - US Markets

The US Dollar is substantially stronger, reaching a 6 year high against the Pound yesterday and gaining against the Euro, supported by a combination of risk aversion, weak international data and optimism surrounding the inauguration of President-Elect Obama.

Obama is expected to announce a fiscal aid package outlining the US road to economic recovery when he takes office this week. Equity markets are likely to remain nervous until the scope and scale of the package are announced. Market focus will turn to North America today with the inauguration of President Obama and the Bank of Canada interest rate decision due.

Euro - European Markets

The Euro strengthened over the Pound yesterday, jumping 2% to 0.92 as Sterling was battered by the release of the largest profit loss in history from RBS.

The ZEW Survey reported that German investor confidence has improved following ECB interest rate reductions. This also comes amidst an EU report revising European growth forecasts down to -1.9% for 2009 painting a somewhat mixed picture for the Eurozone. Yesterday Spain had its credit rating cut by the Standard & Poors, following Greece last week with Portugal and Ireland still under watch. Losses in the UK banking sector were reflected in European equities. There is no further data from the Eurozone today with the German producer price index out tomorrow. 

Other Currencies - Highlights

The Australian and Kiwi Dollars slumped against the US Dollar yesterday as weak equity markets and further risk aversion supported the Dollar. The Aussie and Kiwi Dollars are both up against the broadly weaker Pound this morning as RBS profit losses and market unease is still overshadowing government initiatives to provide support to the banking sector. Global economic contraction is continuing to weigh on commodity prices and Aussie Dollar in particular.

The Canadian Dollar is stronger this morning ahead of an interest rate decision from the Bank of Canada later in the day. Japanese consumer confidence figures and New Zealand retail sales are also announced today.