Pound Sterling - UK Markets

After dropping over one cent against the euro yesterday, sterling exchange rates have recovered this morning, climbing 0.5% to trade in the region of 1.17 against the single currency. Against the US dollar the pound has climbed 0.7% to find support above 1.65 and the UK currency has gained on its other major currency partners.

The pound has risen this morning as investors seek to diversify funds ahead of the US interest rate decision. Figures released yesterday from the British Bankers Association showed new mortgage approvals had risen 15.8% on the previous year. The CBI distributive trades survey is released this morning and this is expected to show positive sentiment in the UK economy. Survey data is becoming increasingly important as we move towards global recovery, with some of the recent currency volatility due to the imbalance between positive survey data and negative actual data. Nationwide housing prices are released in the UK tomorrow.

US Dollar - US Markets

The dollar is broadly weaker this morning, trading at lower levels against a basket of international currency partners as markets await the interest rate decision from the Federal Reserve.

While economists are predicting interest rates will remain unchanged in the US, the language in the accompanying statement will be of interest to investors as it is expected to provide clues to the Fed's activity in coming months. Today the OECD has announced the global economy is approaching a bottom and the organisation has revised growth forecasts upwards for the US and Japan in March. Projections for the UK and Europe however, are not as optimistic with the OECD maintaining the UK is in "sharp recession". Yesterday US home sales rose at a slower pace than expected in May and this morning the US currency is weaker pending the interest rate announcement.

Euro - European Markets

Currency rates for the euro are also mixed this morning as traders pre-position themselves for the US announcement. The single currency has gained on a weaker yen and US dollar, while sliding over 0.5% against the pound, Australian and New Zealand dollars.

European equity markets and currency exchange rates are in consolidation mode this morning as the single currency continues to suffer from the view that the eurozone is mired in recession. The OECD expects the German economy to contract 6.1% in 2009 followed by a 0.2% recovery in 2010. The eurozone current account deficit has narrowed in April for the fifth consecutive month, declining to EUR5.9 billion. There is no further data in the eurozone today with euro exchange rates likely to be affected by movements in US markets.

Other Currencies - Highlights

The Japanese trade balance released overnight showed further evidence of stabilisation in the Japanese economy. Import levels continued to fall, but export levels remained stable after posting gains in the previous two months. The Japanese yen is weaker against the pound and US dollar this morning.  

The Australasian currencies are shadowing global trends at present, as key economic data out in the US and UK sets the tone for currency exchange rates. Consumer confidence in New Zealand rose to an 18-month high in the second quarter, driven by low interest rates and income tax cuts. The Australian and Kiwi currencies have gained on the pound and US dollar this morning.