Pound Sterling - UK Markets

The pound reached a record high for 2009 against the euro this morning, touching on 1.1722 before dropping back slightly to 1.1714. Sterling is also experiencing a bullish run against the US dollar at present, trading at 1.64 this morning and has gained against its major international currency partners on the back of the view that recession is easing in the UK.

The rally in sterling exchange rates is derived from the rise in industrial and manufacturing output  announced yesterday. This rise is the first in more than one year and the growth, albeit small, improved sentiment towards sterling and the governing Labour party. The National Institute for Social and Economic Research (NISER) has predicted the UK economy will return to growth in April and May of 2009, putting the UK on track for a second quarter expansion. The figures also provide support for recent Bank of England policy as it appears the devaluation of the pound, low interest rates and quantitative easing are working to simulate the economy. The MPC is expected to keep interest rates low for some time yet. There is no major data released in the UK today.

US Dollar - US Markets

Current exchange rates for the US dollar are bearish as investors contemplate the health of the US economy. The dollar is currently trading at 0.71 against the euro and has declined 0.7% against a significantly stronger pound to trade at 0.60. The dollar is also weaker against the Canadian, Australian and New Zealand currencies.

Improved confidence in global recovery following better than expected industrial production figures in the UK devalued US currency exchange rates yesterday, as investors sought out riskier investments. However the announcement of the US trade balance yesterday afternoon, which fell to USD-29.2 billion capped risk appetite internationally as concerns resurfaced as to the health of the US economy. Markets are still digesting speculation as to whether the Federal Reserve will raise interest rates by the end of 2009. News that the Russian Central bank wants to replace its dollar reserves with IMF backed bonds added to pressure on the dollar yesterday, as serious concerns still surround the health of the US economy. Today, markets will be interested in US retail sales figures due this afternoon.

Euro - European Markets

This morning the euro touched on a new 2009 low against the pound, falling to 0.85 as better than expected industrial production figures fuel confidence in UK recovery prospects. The euro has however, gained ground against a weaker dollar and risen against a basket of its major Asian and European currency partners.

Euro exchange rates lost momentum against the dollar yesterday, falling below 1.4 on the back of weaker than expected French industrial production figures and concern over the US economy. French industrial output fell by 1.4% in April, greater than the 0.2% predicted and in contrast to growth in the UK industrial sector. In early trading this morning the euro has gained ground to trade at 1.4 against the US dollar but remains weak against a revitalised pound. Tomorrow we could see some euro volatility from the release of the German wholesale index and industrial production figures from the EMU, followed by a speech from ECB president Trichet.

Other Currencies - Highlights

The New Zealand dollar turned bullish against its international currency partners yesterday as the Reserve Bank surprised investors by keeping interest rates on hold at 2.5%. This drove the Kiwi to its largest gains in two weeks against a basket of international currency partners. This is the first pause in interest rates since July 2008 for the RBNZ, although with little to no growth expected in the Kiwi economy until late 2009, the door remains open for further rate reductions. Signs that the housing market may be approaching a bottom have also increased economic optimism in New Zealand. Retail sales figures are due tomorrow.

Exchange rates for the Australian dollar have also improved following a report that the economy shed less jobs than expected in May. The Australian unemployment rate is currently 5.7% with the economy shedding 1,700 jobs since April. The Aussie and Kiwi currencies also experienced a boost following news that China will increase spending on roads and infrastructure, fueling demand for commodities.