Pound Sterling - UK Markets

Sterling has lost ground against its international currency partners as risk appetite takes a knock in the wake of the Federal Reserve interest rate decision. The pound is down 0.5% on the greenback and 0.81% against the euro although remains within recent trading ranges.

The CBI distributive trades data released yesterday showed little upturn in retail trends from May to June, with the index coming in at -17. This is despite two previous months of consecutive gains and combined with negative statements from the OECD and Bank of England governor, the results drove sterling exchange rates downward yesterday. The OECD predicts UK growth will contract by 4.3% in 2009 followed by zero growth in 2010 while Governor King admitted he is "uncertain" over the state of the UK economy. There is no data out in the UK today.

US Dollar - US Markets

Exchange rates for the US dollar are stronger this morning, as the greenback has capitalised on a tide of risk aversion. The dollar has gained against the yen, pound and New Zealand dollar while losing ground to the euro, Aussie and Canadian dollar in early trading this morning.

The Federal Reserve acted in line with market expectations yesterday, opting to leave interest rates on hold at 0.25%. Of more interest to foreign exchange markets was the accompanying statement which noted that borrowing rates are likely to remain low for an "extended period". In other words, the outlook is virtually unchanged and while the Fed will not be adding any further stimulus, neither will they be devising an exit strategy. Today, international currency exchange rates are likely to be affected by unemployment claims and first quarter annualised GDP figures due in the US this afternoon.

Euro - European Markets

The euro has been the major winner in terms of exchange rates overnight, strengthening against its international currency partners following the Federal Reserve announcement. The euro has gained 1% on the Japanese yen and is up 0.86% on the pound.

The OECD report yesterday brought downbeat news for the eurozone, including a recommendation to reduce the euro repo rate and predictions that the US would emerge from recession first. The ECB announced its first ever re-financing operation for European banks, lending out EUR442.24 billion and this prevented a widespread surge in risk aversion following the Federal interest rate decision. European equities also received a boost from US durable goods orders which rose 1.8%. Today industrial new orders in the eurozone have sunk -1% on the month, contracting at an annual rate of -35.5%, well above market predictions. There is no further data in the eurozone today.

Other Currencies - Highlights

Australian exchange rates gained for the third straight day against the pound as a rally in the Dow Jones and FTSE 100 revived demand for the higher yielding currency. The Fed decision to leave interest rates on hold failed to spark a wave of risk appetite, but in combination with the ECB refinancing announcement, it failed to trigger widespread risk aversion either. The kiwi dollar also gained against the pound following dovish comments from Bank of England Governor King and flat CBI data. First quarter GDP figures are out in New Zealand tomorrow.