Pound Sterling - UK Markets

Sterling foreign exchange rates have improved against a basket of international currencies this morning following the endorsement of prime minister Gordon Brown by members of the Labour party. The pound has climbed 0.55% against the dollar to find support above 1.6 and is currently trading at 1.15 against the euro. Sterling is also stronger against the yen, Australian and Kiwi dollars.

A survey from the Royal Institute of Chartered Surveyors has shown housing inquiries increased for the seventh month in a row, providing further evidence that the housing market may be approaching a bottom. The house pricing index improved from 59 to 44. The Bank of England announced plans yesterday to improve the supply of trade finance and Lloyds is set to close more branches, adding yet more job cuts to the UK economy. UK industrial and manufacturing production data are due out tomorrow and as the first piece of second quarter economic data, this could induce some volatility for the pound.

US Dollar - US Markets

Foreign exchange rates for the US dollar have declined overnight against its higher yielding currency partners. The dollar is currently trading at 0.61 against the pound and 0.71 against the euro and has dipped against its major European currency partners.

The US Treasury is set to announce 10 US banks are to buy back shares, signalling confidence in the ability of the banking sector to operate independently from the government. This is in contrast to warnings from IMF leader, Dominique Strauss-Kahn that the global financial system remains in a distressed state. While the property market continues to show signs of recovery in the US, employment data is more likely to drive the long term trend in interest rates. Economists are predicting the Fed may raise borrowing costs later in the year based on recovery prospects. The release of the Fed beige book and official trade balance could cause some dollar volatility later in the day.

Euro - European Markets

Foreign exchange rates for the euro are mixed this morning as the single currency has declined against the yen, Australian dollar and pound, but gained on the US, New Zealand dollar and South African rand.

The Standard and Poor's downgraded Ireland's credit rating to AA yesterday and this led the euro to weaken against the US dollar and pound. It also led to a wave of risk aversion internationally with New Zealand and Australian foreign exchange rates declining against the euro and greenback. This morning German industrial production figures are due and this could influence euro sentiment moving forward.

Other Currencies - Highlights

Australian business confidence has improved by the largest amount since 2001 after the government pledged AUD22 billion for infrastructure projects. Australian and New Zealand foreign exchange rates have gained overnight, trailing gains in European and Asian equities. The Reserve Bank of New Zealand is due to make an interest rate decision this week.

In Japan the pace of recession is easing, as shown by a broad government measure of economic health. The coincident index, a combination of 11 economic factors including factory production and retail sales, has risen for the first time in 11 months. Japan has faced its worst recession since World War II but industrial production and exports have now improved for two consecutive months. Japan's first quarter GDP figures are released tomorrow.