Pound Sterling - UK Markets

Sterling has continued to decline this morning, down to 1.35 against the US Dollar and 1.05 versus the Euro.  Uncertainty over the financial crisis, spiralling government debt and negative economic data are all placing Sterling under severe pressure at present.

UK GDP contracted -1.5% in Q4 2008, taking year on year growth to -1.8% and confirming the deep economic downturn in the UK. CBI industrial trends show order books at their lowest level since 1991 and this is expected to be reflected in manufacturing figures for January. Retail sales increased 1.8% in December as the reduction of VAT and heavy discounting drew people into stores during the Christmas period. The drastic sell off of Sterling is coming from a lack of confidence in the financial sector and in the ability of government to provide assistance. Growing speculation that the government will need to take a more unconventional policy approach, combined with soaring debt levels and shrinking share prices are battering investor confidence. Conservative Leader David Cameron has sparked outrage this morning with his comments that Britain may need to seek IMF assistance as government debt levels soar to £71 billion. Short selling is back in the spotlight and may face further bans. There is no further data in the UK today 

US Dollar - US Markets

The Dollar is up 1.6% on the Pound and 1.4% on the Euro, supported by a combination of risk aversion and rallies in equity markets as President Obama and his team get to work in Washington. The Dollar has also gained on its major Asian and European currency partners.

US Treasury Secretary-nominee Timothy Geithner announced yesterday a strong Dollar was beneficial to the US economy and equity markets rallied, supporting the Dollar even further. The underlying trend in equities is still unstable as investors are unsure how to respond to plans of nationalization and the world waits for monetary easing policies to trickle through. There is no data out in the US today.

Euro - European Markets

The Euro is showing mixed results internationally, lower against the traditional safe havens yet stronger against the higher yielding currencies. The Euro is currently at 1.28 versus the Dollar and 0.94 versus the Pound.

Figures this week show recession becoming more entrenched in the Eurozone. German PMI for manufacturing and services has contracted sharply in January, Spain's unemployment level has hit 13.9% and French business morale is at an all time low. PMI for services and manufacturing for the Eurozone show the European economies are deep into recession territory. There is no further data from the Eurozone today.

Other Currencies - Highlights

The Australian and New Zealand Dollars have gained against Sterling but are weaker against the US Dollar. Rallies in US equities have triggered a recovery in risk appetite allowing the Australasian currencies to strengthen over Sterling. The RBNZ is expected to cut interest rates by 1% next week. 

Chinese GDP has shrunk to 6.8% in the final quarter of 2008, taking annual growth rates to 9% in 2008. Although significantly higher than most developed nations, this is the weakest figure in seven years. Growth is targeted at 8% in 2009 and the Chinese government has recently released a 4 trillion Yuan stimulus package.