Pound Sterling - UK Markets

The sterling-euro exchange rate strengthened markedly yesterday with the pound rising to 1.16 against the single currency. Sterling has also soared against the dollar, climbing to 1.64 yesterday although the pound has trimmed gains this morning as investors anticipate the Bank of England interest rate decision on Thursday.
 
A strong performance in London equity markets saw the FTSE rise 1.5% by mid-morning yesterday, driven by confidence recession is easing in the UK. Hometrack housing data also showed there had been no monthly decline in house prices for the first time in 20 months and new mortgage approvals have increased in April for the third consecutive month. A positive PMI for the manufacturing sector also improved market sentiment and the construction sector PMI released this morning shows an improvement to 45.9. The service sector PMI is due tomorrow.

US Dollar - US Markets

The US dollar weakened throughout the day yesterday following news of GM's bankruptcy. This morning however, the greenback has recovered losses to trade at the current exchange rate of 0.61 against the pound and 0.70 against the euro.

US stocks weakened yesterday following news of the GM bankruptcy, the largest industrial bankruptcy in US history. The company will continue to manufacture under US government protection and the bankruptcy is expected to be a short "surgical" move to restore a leaner and more efficient company. Signs that the recession is easing continue to show with international order levels improving and savings ratio for the US consumer jumping 5.7%. US pending home sales are due today along with the Washington Post consumer confidence survey.

Euro - European Markets

The current euro exchange rate is testing support around 1.41 against the US dollar and 0.86 against the British pound. The euro has weakened against the safe haven currencies this morning while gaining ground against the Australian and New Zealand dollars.

European equities also performed strongly yesterday on the back of improved manufacturing figures from China, despite the announcement of GM's bankruptcy which is set to affect thousands of jobs in the eurozone. Figures released this morning show the EMU unemployment rate has climbed to 9.2% for April. Switzerland's economy shrunk the most in 15 years in the first quarter due to a drastic slump in exports. Ryanair has posted its first annual loss due to rising fuel prices, reduced demand and the takeover of a stake in Irish carrier Aer Lingus. GDP figures and the service sector PMI are due tomorrow.

Other Currencies - Highlights

The Australian dollar rose to an eight-month high against the US dollar overnight, driven upward by demand for commodities and higher yielding currencies. The RBA decision to keep interest rates on hold at 3% has also boosted the Australian dollar as this remains a relatively high yield internationally. It also leaves the Reserve Bank with scope to reduce rates further in future. The Australian and New Zealand dollars both dipped against the pound overnight. Australian GDP figures for quarter one are released tomorrow.