Pound Sterling - UK Markets

Yesterday, sterling climbed against the pound and euro, driven by gains in equity markets as the FTSE closed the day up 1.25%. This morning the pound dipped sharply following the GDP announcement, but has recovered to trim losses against its international currency partners, with the exception of the yen and commodity based Aussie dollar and South African rand. Current sterling exchange rates are 1.66 against the US dollar and 1.18 against the euro.

UK GDP contracted by -2.4% in the first quarter, significantly more than the -1.9% predicted by markets. This is the largest contraction in 51 years and takes the annual rate of contraction to -4.9%. This is ahead of Bank of England predictions and the ONS attributed the decline to steep contractions in construction and production levels. The rest of the day is light for UK data with the manufacturing sector PMI due tomorrow.

US Dollar - US Markets

US dollar exchange rates lost 0.44 cents to the pound in yesterday's trading and continues to decline this morning, currently trading at 0.60 versus the pound and 0.70 versus the euro. The dollar has also lost 0.48% to the yen and 0.65% to the Australian dollar as the Aussie receives a boost from stronger commodity prices.

Yesterday was relatively quiet for US foreign exchange markets with a light start to the week in terms of US data. The US dollar received a boost on the back of comments from China which reaffirmed the position of the US dollar as the premier global reserve currency. Today consumer confidence figures are due in the US, with household earnings and personal consumption data likely to cause some currency volatility later in the week.

Euro - European Markets

Euro foreign exchange rates have experienced choppy trading this morning, climbing against the US dollar and Indian rupee, while losing ground to the yen, pound, Canadian, Australian and New Zealand dollars.

European consumer prices have recorded their first annual decline this month, with CPI falling -0.1%. This is largely due to plunging energy prices, rising unemployment and low consumer demand. The inflation rate in Germany is currently at zero, while consumer prices are also falling in Spain and Ireland. ECB president Trichet expects inflation to remain negative before returning to positive territory by the end of the year. There is no data out in the eurozone today with the manufacturing PMI due tomorrow.

Other Currencies - Highlights

The Canadian dollar has failed to capitalise on rising commodity prices recently, remaining in lower ranges against the US dollar. This is despite rising oil prices and economists are predicting the Canadian dollar could correct to higher exchange rates against its US counterpart in the near future. Canadian GDP figures are out this afternoon and this could be a source of further volatility.