Pound Sterling - UK Markets

After touching on a seven-month high against the dollar yesterday, the pound has dropped back to 1.63 this morning on the back of negative employment figures in the US. The UK currency is also lower against its European counterparts pending interest rate decisions from the MPC and ECB this morning.

The UK currency reached 1.66 yesterday against the US dollar, the best exchange rate in seven months in a market which favoured the higher yielding currencies. This morning sterling has trimmed its gains as part of a corrective decline and due to the MPC decision announced today. With interest rates already at 0.5%, the Bank is expected to leave rates unchanged although some economists are predicting an expansion in levels of quantitative easing. Halifax house prices have climbed 2.6% in May, although they remain -16.3% lower than this time last year. The interest rate decision is due at noon.

US Dollar - US Markets

Results are mixed for the US currency this morning as the dollar has gained on the yen and other Asian currency partners, while declining against the euro and pound to trade at 0.70 and 0.61 respectively.

Private sector employment figures released yesterday in the US were weaker than expected by markets. This ironically served to strengthen the US dollar as investors fear US employment figures could also be negative, undermining confidence in global recovery. Equity markets and oil prices also declined overnight. Today US currency trading is likely to be affected by interest rate decisions in Europe and tomorrow the employment rate and non-farm payroll figures are due in the US. The current consensus is for a 0.3% rise in US unemployment and this could affect risk appetite internationally.

Euro - European Markets

The single currency has gained against the US dollar in early trading this morning, recovering losses after negative employment figures in the US to trade at 1.42 to the dollar. The euro is also stronger against its major Asian currency partners and has gained on the safe haven yen and Swiss franc.

The euro-sterling currency rate is little changed in the run up to the ECB interest rate decision. The ECB is widely expected to leave interest rates on hold at 1% and economists are predicting signs of recovery in the eurozone may help to heal the policy rift in the ECB that has occurred in recent months. Retail sales for the euro area have risen by 0.2% in April, a positive result for the single currency. The ECB interest rate decision is due this afternoon, to be followed by a speech from ECB president Trichet.

Other Currencies - Highlights

The Bank of Canada interest rate decision is due today, followed by the official unemployment rate tomorrow. The Bank of Canada is likely to keep interest rates at record lows in an attempt to support exporters as the recent rise in the Canadian dollar has threatened to undermine recovery in the export market. The CAD has surged to an eight-month high against the US currency this week on the back of improved global confidence, making exports more expensive for Canadian trading partners.

The yen has declined against its major currency partners in recent weeks as improved confidence has aided the diversification of investor funds. The Japanese economy remains entrenched in deep recession with figures showing capital spending has declined by 54% as the slump in global exports has eroded profit margins leading to lower levels of reinvestment.