Pound Sterling - UK Markets

Sterling currency rates have surged this morning, gaining over 1% against the US dollar and yen. The pound is currently testing the upper limits of recent ranges against the US dollar, trading at 1.65 and is valued at 1.15 against the euro.

Accountants Ernst & Young have predicted the UK economy will contract by -4.5% in 2009, making it the worst economic year since WW2. They also predict recovery to be modest in 2010 as the UK makes a slow recovery from recession. Mortgage lending has risen sharply in June, rising to GBP12.3 billion from GBP10.5 billion the previous month. While this is a positive move, the figure largely reflects a seasonal pick up in house prices and lending is still 48% lower than in June 2008. This week sterling currency rates are likely to be affected by the Bank of England minutes due on Wednesday.

US Dollar - US Markets

US currency rates are lower this morning due to a healthy appetite for risk in the market, driven by positive corporate earnings in the US last week. The US dollar is currently trading at 0.70 versus the euro and 0.60 versus the pound, and is also around 1.5% lower against the Australian and Kiwi currencies.

The S&P gained over 7% last week and European equities gained over 8% following news that corporate giants Goldman Sachs, JP Morgan, Intel and Google all made substantial profits in the second quarter. Tomorrow Federal Reserve chairman Ben Bernanke is due to testify on the state of the US economy and Fed monetary policy. With his speech outlining expectations for the coming 2-3 years and potentially hinting at changes to interest rates or QE levels, this will be of interest to international markets and may cause some currency volatility. This afternoon leading indicators are due in the US.

Euro - European Markets

Currency rates for the euro have also climbed this morning, rising to 1.42 against the US dollar on the back of market optimism. The euro is currently valued at 0.86 against the pound and has sunk against the Australian dollar and Kiwi dollars.

Germany's producer price index has sunk -0.1% in June, falling at an annual rate of -4.6%. This is the strongest decline in factory gate prices since 1986 and sends the producer price index into negative territory for the first time. Also this morning Iceland has announced an ISK270 billion package to stabilise the nation's three major banks which collapsed at the height of the financial crisis last year. Glitnir, Landsbanki and Kaupthing all collapsed in the space of one week last October. The Swiss trade balance is due tomorrow with EMU factory orders out on Wednesday.

Other Currencies - Highlights

The Australian and Kiwi dollars lost ground on Friday, after bomb blasts in Indonesia heightened risk trading in the market. This morning however, Australasian currency rates have trimmed gains and risen over 1% against the pound and US dollar. Australian producer prices have fallen 0.8% since the first quarter, the largest drop on record as a strong currency and smaller orders have reduced revenue. This is in line with the international easing of inflationary pressures. Minutes of the RBA meeting are released tomorrow.

The Bank of Canada is due to make and interest rate decision tomorrow. With the consumer price index recording its first annual fall since 1994, falling by 0.3% due to cheaper energy prices, the bank has scope to maintain interest rates at record lows. Economists are predicting the bank to leave rates unchanged at 0.25%.