Pound Sterling - UK Markets

The Pound has strengthened significantly overnight, up to 1.42 versus the Dollar this morning from 1.36 yesterday. Against the Euro the Pound is trading at 1.06 and has also gained on its other major currency partners.

Equity market rallies dampened extreme risk aversion, leading to the gains in Sterling and other high yielding currencies. The announcement from Barclay's that they are still on track to make a profit, despite an £8 billion dollar write down, sent shares in the bank soaring 70%. This did much to improve confidence in the banking sector and led Sterling to strengthen notably over the Dollar and Yen. The CBI Distributive Trends survey is due today which will show business expectations for the coming months. Negative growth is expected until at least quarter two of 2009 with UK recovery lagging the US by at least one quarter. Although the weak Pound has been negative for the UK economy, it has also offered potential to UK exporters, particularly to Japanese and American markets as the Yen and Dollar have both experienced sharp appreciation at the expense of the Pound in recent months.

US Dollar - US Markets

The Dollar has weakened overnight, down 1.5% against the Pound and 0.77% against the Euro as equity market rallies boosted market confidence overnight. The Dollar has gained on the Yen and is weaker against its European currency partners.

The Federal Reserve begins their two day interest rate meeting today. With interest rates already at 0.25% there is not a lot of room for manoeuvre, meaning focus is likely to be on fiscal policy. President Obama has reported Congress is on track to produce a stimulus package by 16 February and extreme risk aversion faded yesterday with rises in key stock markets which served to weaken the Dollar. Market trends have been marginally bullish in the last 3 months, although sentiment remains fragile. Last year was the biggest for US job losses since WW2 with 2.6 million jobs lost. Consumer confidence figures are out in the US today. 

Euro - European Markets

Mixed results for the Euro overnight as it strengthened over the US Dollar and weakened against the Pound. Heightened risk appetite often serves up mixed results for the Euro as the world's secondary reserve. This morning the Euro is trading at 0.93 versus the Pound and 1.32 versus the US Dollar.

German import prices declined 4% from November to December on the back of lower oil prices. This is in line with falling Eurozone inflation rates and will likely add impetus to the case for further ECB rate reductions. The IFO survey has shown German business climate expectations have risen in January. The Eurozone current account deficit has risen to 16 billion in November from 8 billion the previous month. There is no further data in the Eurozone today with Germany's consumer price index out tomorrow.

Other Currencies - Highlights

Australia was closed for a public holiday yesterday, as were Chinese markets which marked the beginning of Chinese New Year. The Australian and Kiwi Dollars strengthened overnight, supported by equity market rallies and stronger commodity prices. The RBNZ meets tomorrow and is expected to announce a 1% reduction in the base rate although market focus will be on the Federal Reserve announcement to be made the same day. A surge in market confidence in the US could lead to further gains in the Australasian currencies.

Japan's Nikkei index soared yesterday after the government announced it would use public funds to support companies and the Yen weakened with the rise in risk appetite internationally. There is no data from Japan today with retail figures due tomorrow.