Pound Sterling - UK Markets

After touching on 1.65 against the US dollar yesterday, sterling foreign exchange rates have fallen in early trading this morning, declining 0.7% against the US dollar and 0.56% against the euro. Sterling has also lost ground against the Aussie and Kiwi dollars, as high levels of government debt reduce confidence in the pound.

UK public borrowing has hit a record GBP13 billion in June, more than double that of one year ago. Government borrowing currently stands at £798 billion, or 56.6% of GDP. While these are moderately better than expected figures, the dire state of UK public finances will place a large debt burden on the government in future. There is no further data in the UK today with the MPC minutes due tomorrow.

US Dollar - US Markets

Foreign exchange rates for the US dollar have risen this morning, trimming yesterday's losses ahead of Ben Bernanke's speech. The US dollar is currently trading at 0.70 versus the euro and 0.60 versus the pound.

Bernanke's testimony this afternoon will be the focus of foreign exchange trading throughout the day. Pre-empted by an article in the Wall Street Journal, his speech is expected to outline the Fed's exit strategy from the largest stimulus package in history. Markets are expecting no immediate action to tighten monetary policy, but Bernanke has noted that the Fed will act effectively to control inflation in future. 

Euro - European Markets

European foreign exchange rates are mixed this morning, with the single currency gaining against the pound, Australian and kiwi currencies, yet falling against the US, Canadian dollar and Japanese yen.

Yesterday European indices gained a further 1%, consolidating last week's 8% rise and this helped the euro break above 1.42 against the US dollar, taking the euro-dollar exchange rate to a six-week high. This morning euro currency rates have dropped back, with risk appetite affected by Bernanke's speech this afternoon. Switzerland's trade balance has decreased to CHF1.57 billion in June, falling 23.5% lower on the year. There is no further data in the eurozone today, with industrial news orders due tomorrow.

Other Currencies - Highlights

Australian and New Zealand foreign exchange rates remain low as Bernanke is expected to keep interest rates on hold for some time. Minutes from the last Reserve Bank of Australia meeting show the bank remains committed to monetary easing, and consumer price inflation figures due today should have some impact future interest rate policy.

Japanese yen foreign exchange rates are stronger this morning, as risk aversion trading dominates ahead of Bernanke's speech. Minutes from the Bank of Japan meeting show the bank will stagger exit strategies from its three separate monetary easing strategies, so as not to disrupt the fragile market stability at present in Japan. The yen is currently trading at 154.57 per pound and 94.17 per US dollar.