Pound Sterling - UK Markets

Sterling currency rates advanced on the euro yesterday, closing the day's trading at 1.1591 after housing figures and news that Gordon Brown was safe, for now, calmed investor nerves. In early trading this morning sterling has continued its bullish run, capitalising on market optimism to reach 1.64 against the US dollar and 1.16 against the euro.

Industrial and manufacturing production figures released in the UK this morning show better than expected results for April, as the pace of economic decline is easing. As the first set of statistics for quarter two, this means the UK economy will start the quarter in a less weak position than before. Further evidence that the UK economy may be stabilising came in the form of the RICS survey yesterday which showed the slowest decline in housing prices since November 2008. This supports earlier data released by Halifax and Nationwide and has boosted sterling exchange rates, as the property sector is regarded as crucial to wider economic recovery. The UK trade balance is also released this morning and this could be a further source of volatility for sterling currency rates.

US Dollar - US Markets

Currency rates for the US dollar have sunk this morning as optimism over global recovery fuels demand for the higher yielding currencies. The dollar is down 0.40% on the euro and 0.55% on the pound to trade at 0.70 and 0.60 respectively and has also declined against its major European and Asian currency partners.

Speculation that the Federal Reserve could raise interest rates by the end of the year affected international currency rates yesterday, bringing optimism that the worst of the recession may be over. Confirmation from treasury secretary Geithner that 10 major US banks are to repay USD68 million worth of government money, pumped into banks at the peak of the financial crisis, also added to the opinion that the US economy is stabilising. This sent a wave of optimism through global equity markets which translated into gains for some of the higher yielding currencies. International currency rates today are likely to be affected by the release of trade balance figures in the US.

Euro - European Markets

Currency rates for the single currency rose yesterday on the back of news that US banks would repay Federal funds, lent to them in the midst of the financial crisis. In early trading this morning the euro has risen against the dollar and most of its Asian currency partners, while declining against the pound, Canadian dollar and Aussie and Kiwi currencies.

At present European currency rates are benefiting from improved optimism over recovery prospects in the US. In the eurozone however, figures released yesterday show German industrial production figures fell more than expected in April, while export levels also dropped at their fastest rate since 1950. Although economists are speculating these figures represent the trough of the recession, they also show recovery in the eurozone may be some way off. The German consumer price index for May shows a 0.1% decline on the month. There is no further data in the eurozone today with the ECB monthly report released tomorrow.

Other Currencies - Highlights

Currency rates for the Australian dollar were supported by the rise in commodity prices, particularly oil, as global recovery prospects appear more certain. Today April housing figures and Westpac consumer confidence are likely to affect Australian exchange rates. The Kiwi is trading at lower levels amid uncertainty over the RBNZ interest rate decision due on Thursday.

The Japanese yen has also weakened overnight as demand for the higher yielding currencies grows on the back of recovery prospects. Evidence of recovery has triggered demand for riskier assets leading investors to withdraw their funds from the traditional safe havens. The Australian and New Zealand dollars as well as the South Korean won gained the most of 16 major currencies while the yen and dollar both experienced selling pressure. GDP figures in Japan are released this evening British time.