Despite the papers depicting an Alistair in Wonderland type scenario with the announcement of the UK budget this week, there was no sugar coating those figures. With debt levels soaring and growth contracting it is not surprising that investment in Cadbury is deemed safer than investment in the Treasury at present. Chocolate coins anyone? They would certainly be easier to swallow.

This week has been heavy on the data front with the UK in the international spotlight as the annual budget, inflation and unemployment figures were released. Despite pressure in the run up to Wednesday's budget, the pound has fared relatively well, keeping its chin above 1.45 on the dollar and 1.11 on the euro.

Internationally markets continue to oscillate between positive and negative territory according to the latest data released and this is dictating risk appetite and exchange rates for many of the minor currencies. This week the euro touched a 5 week low against the dollar, but later rallied on the back of positive economic news from the Eurozone.

In the UK, the annual budget announced an expected 3-3.5% growth contraction for 2009 with the budget deficit spiralling to an ‘eye watering' 12% of GDP. Also among the headline grabbers was the 50% top tax rate and initiatives to revitalise employment, property and auto manufacturing markets. High tax rates have raised the issue of international competitiveness and led to criticism that top investors would simply leave their money offshore. The government also confirmed the view that a weak pound in the short term will give exporters a much needed boost.

Also affecting sterling exchange rates was the news that core inflation was 0% in February, taking the annual rate into negative territory for the first time. The MPC minutes showed the committee unanimous in its decision to maintain current interest rates and levels of QE and the official unemployment rate rose to 6.7%.

In the US private sector news has dominated, affecting the general trend in equities and risk appetite internationally. Corporate earnings showed Bank of America, Citigroup and Credit Suisse all turned a profit in the first quarter of 2009 triggering a wave of optimism over an emerging stability in the banking sector, albeit a very fragile one. So fragile in fact that the news write downs may be larger than predicted rattled market confidence and it took the reassurance of Treasury Secretary Geithner to put markets back into positive territory.

The euro has been trapped in a bearish run against the dollar and pound for most of the week with public debates from members of the ECB and the perception that recession is becoming more entrenched in the Eurozone weighing on the single currency. The euro touched a 5-week low against the dollar but has rallied above 1.3 this morning on the back of positive (read: less bad) economic data showing the pace of recession is easing. German PMI's and EMU industrial new orders snapped months of record declines and the German ZEW economic survey illustrated a significant rise in economic sentiment.

This however, is not the case for Eastern Europe and the emerging economies continue to be battered by recession. The IMF forecast European banks could face more substantial write downs and require greater capitalization than US banks and has predicted a net loss of investment to Eastern Europe. Economists are favouring short positions on Eastern European currencies. Moody's remains a strong presence in the international marketplace having downgraded the credit ratings of Latvia and Lithuania. The Baltic region is home to some of the greatest casualties of recession with some of the economies transforming from the fastest growing in the region to the deepest contractions.

Elsewhere the Australian and Kiwi dollars and Japanese yen have been trapped within familiar ranges as currency exchange rates are subject to risk appetite. The news that Japanese exports have fallen, but not at record levels, strengthened the Yen.

Internationally the picture is of an emerging stability, albeit a highly unstable one. News that is merely ‘less bad' is now considered ‘good' as markets have become somewhat desensitized to negative data. Sterling has regained some of the ground lost over the new year period and seems to have a found a support level at 1.45 versus the dollar and 1.10 against the euro. While choppy ranges persist, particularly when it comes to the Eastern European currencies, it is worth letting your dealer know your requirements or setting a limit order to take advantage of market spikes when they occur. Let your dealer know your currency requirements and they will set one up for you.
 
Have a good weekend!