Pound Sterling - UK Markets

The Pound remains strong against the US Dollar, sitting above the 1.5 level this morning after the Bank of England reduced interest rates to 1.5%. After the announcement yesterday the Pound touched on 1.53, levels not seen since mid-December. Against the Euro the Pound is largely unchanged at 1.11 this morning as negative economic data continues to affect the Euro.

The Bank of England has now cut interest rates 3.5% since October 2008 and the Government has urged lenders to pass on these savings quickly. As interest rates approach zero throughout the world, Central Banks are coming to the extent of their policy limits and quantitative easing is looking increasingly likely as a future tactic. However this process, where banks effectively print more money, is high risk and could potentially undermine the independence of the Bank of England. Industrial production and manufacturing figures released this morning have shown a decline in UK output as expected though as this is matched by negative figures from the US and Eurozone today, is unlikely to have a significant impact on Sterling.

US Dollar - US Markets

The US Dollar has remained relatively unchanged overnight at 0.66 versus the Pound and 0.73 versus the Euro. However the Dollar has weakened against both the Canadian Dollar and the Yen as unemployment figures are expected to top half a million.   

Today is non-farm Friday in the US, which brings employment figures for December and is expected to show the highest unemployment rate in 16 years. This has led to negative sentiment in US equities and oil has dropped to $45 a barrel. The unemployment figures are released this afternoon.

Euro - European Markets

The Euro is experiencing greater volatility following its recent bullish runs on the Dollar and Pound.

Initial opinions that the Eurozone may not be as deeply affected by the credit crunch are being revised and the ECB is coming under growing pressure to reduce interest rates further. Germany, the Eurozone's largest economy experienced a drop in manufacturing orders of 6% in November with industrial and consumer confidence also declining at record levels. Spanish industrial output has declined by 15.1% in November and unemployment rates are at a 12 year high of over 3 million. While the reluctance of the ECB to slash interest rates aggressively has been a source of Euro strength of late, the ECB is now facing increasing pressure to cut rates further as the downturn gains momentum. The ECB meets next Thursday and is expected to reduce rates by 0.5%.

Other Markets - Highlights

The Canadian Dollar and Japanese Yen have both strengthened over the US Dollar ahead of employment figures due to be released in the US. The Australian Dollar lost ground against the Pound after the Bank of England's decision and the Kiwi and Aussie Dollars remain vulnerable as economic downturn becomes entrenched in the world's major economies. Canadian unemployment figures are due out today.