Wall Street Plunges
Pound Sterling - UK Markets
Sterling has suffered further declines this morning, falling through 1.4 to reach 1.37 against the US Dollar and has plunged back to 1.06 against the Euro. The Pound is over 1% lower against the Kiwi and Aussie Dollars and fell to a record low against the Yen as RBS profit losses this week have shattered precarious market confidence.
Lloyds and RBS suffered further losses yesterday as investors lost faith in the ability of government to bail out the banking sector. Bank of England Governor Mervyn King has called for the Bank to start buying assets quickly to avoid a ‘marked' recession although potential nationalisation of the banking sector has investors equally spooked as government debt levels are spiralling. Employment figures out this morning have shown 77 000 jobs lost in December with the unemployment rate at 6.1%. Ernst & Young predicted earlier in the week that unemployment would rise to 3.4 million. The MPC minutes are released this morning.
US Dollar - US Markets
The US Dollar is gaining against the Euro after suffering losses yesterday after the plunge in Wall Street confidence. The Dollar is trading at 0.72 versus the Pound and 0.77 versus the Euro.
Despite the inauguration of President Obama the Dow Jones suffered its worst drop since December 1 yesterday. The Standard and Poors and NASDAQ also posted significant losses as Wall Street was affected by struggles in the UK banking sector. Shares in Bank of America and Citigroup fell by 28% and 20% respectively. Confidence in the banking sector remains at all time lows as massive profit losses have shattered trust in banks. President Obama called for ‘bold and swift' measures to alleviate pressure on markets and his economic stimulus package could be the only form of relief palatable to markets. There is no major data from the US today.
Euro - Euro Markets
The Euro is trending upwards this morning, having gained over 1% against the Pound as turmoil in Wall Street and the FTSE drag the Pound down. The Euro is also gaining against the US Dollar and Asian currencies as markets remain risk-averse.
This morning President Sarkozy has pledged 10.5 billion to Societe Generale after the bank announced they broke even in the fourth quarter of 2008. German producer price index figures have fallen 1% on the month indicating further drops in consumer inflation and increasing the scope for further interest rate cuts in the Eurozone. Trichet has previously indicated no further cuts are likely until March. Today is light for Eurozone data with the ECB's monthly report due tomorrow.
Other Currencies - Highlights
The Australian Dollar reached 6 week lows against the US overnight as crisis on Wall Street curbed demand for the higher yielding currencies. Consumer inflation in New Zealand has fallen by 0.5% increasing speculation of a 1% rate cut by the RBNZ this month. New Zealand retail sales figures released this morning have held surprisingly firm, remaining unchanged for the November period.
Yesterday the Canadian central bank cut rate by 50 basis points to 1%, yet left the door open for further rate cuts. An interest rate decision is due from the Bank of Japan tomorrow but with rates already at 0.1% we may see further quantitative easing policy. The Yen is currently trading at record highs against the Pound as UK markets are battered by a lack of confidence in both government and the financial sector.