Pound Sterling - UK Markets

Sterling foreign exchange rates continue to slide against the euro and US dollar this morning as negative data last week and a stall in the equity market rally reduces demand for the pound. Sterling exchange rates are over 0.75% lower against the dollar and euro and the pound is also lower against the Australian and Canadian currencies.

Poor producer price index figures released on Friday showed a 1.2% slump in the annual rate, which is likely to subdue inflation rates for some time. The Bank of England also voted to leave current QE levels unchanged, to the surprise of many economists who felt downbeat UK data recently justified a GBP25 billion increase in QE levels. This failed to stimulate demand for the pound and this week the consumer price index and retail sales figures are likely to set the tone for sterling exchange rates.

US Dollar - US Markets

US foreign exchange rates have retained their strength this morning, gaining over the high yielding currencies as equity markets search for a source of confidence. The US dollar is currently valued at 0.62 versus the pound and 0.71 versus the euro.

In the US there is increasing speculation that the recent rally in equity markets is coming to an end and we could see a further downturn before the beginning of a bona fide economic recovery. The Standard and Poor's slid 3% last week and downbeat corporate earnings outlook from US oil company Chevron supported dollar and yen exchange rates. Ben Bernanke is due to address Congress next week and could be set to outline the Fed's exit strategy from the financial crisis. US retail sales and the producer price index will be the focus of foreign exchange markets this week.

Euro - European Markets

Euro foreign exchange rates have gained ground in early trading this morning, benefitting from the euro's reserve status to strengthen over the "riskier" Canadian, Australian and New Zealand dollars.

ECB president Trichet is due to speak today and this will likely be a source of volatility for euro foreign exchange rates. Last week, figures showed GDP contracted -2.5% in the first quarter, marking the fourth consecutive quarter of contraction for the eurozone. A breakdown of this showed industrial output is a large factor in the downturn, suffering an -8.5% decline. Yet with recent figures showing output in Germany and France has risen along with the industrial production PMI, the eurozone could be showing signs of recovery. Industrial production statistics are due for the eurozone tomorrow with the consumer price index out later in the week.

Other Currencies - Highlights

In New Zealand retail sales rose 0.8% in May, building from the previous 0.5% increase and marking the third time in four months that sales have risen. This is leading to speculation that record low interest rates could be helping to lift the economy out of recession. This morning however, New Zealand and Australian foreign exchange rates fell to an eight-week low against the yen on speculation that the global recovery will be slower than previously thought. The New Zealand dollar also sunk against the US dollar after a report showed a decline in business confidence amongst New Zealand farmers. Australia's national bank business conditions are due out tomorrow.