Limited risk appetite returns
Pound Sterling - UK Markets
Sterling has been pushed to the lower end of trading ranges this morning amid weak production figures and fears over the stability of the UK banking sector. The Pound is currently trading at 1.38 versus the US Dollar and 1.09 against the Euro and has lost ground against the Australian, Canadian and New Zealand Dollar.
Pressure on Sterling has come from the government announcement it is to increase its stake in Lloyds to 77%, the day after the bank ceded control to the government. The Bank of England is also to embark on its new policy of quantitative easing this week and uncertainty over this method is contributing to market unease. Manufacturing levels have fallen further in January, declining -2.9% on the month and -12.8% on the year. Alistair Darling has called on G20 nations to increase their funding to the IMF, stating rich nations have a ‘moral imperative' to do more in the wake of the global crisis. An increase in scope for the IMF as global regulators is expected to be high on the agenda at the G20 summit in London in early April. The UK property market remains in a deep slump, confirmed by sales between December and February which are at their lowest level in 31 years. The number of new homes being built is expected to decline to 70,000 this year, nearly half that of previous years. Enquiries from potential buyers however, have been increasing as houses have reached their most affordable level in years and interest rates are at an all time low. There is no further data out in the UK today
US Dollar - US Markets
The Dollar is declining this morning, coming down off recent highs from risk averse investors. The Dollar is down over 1% on the Australian and Kiwi Dollars and has lost ground against the Pound and Euro this morning.
The US Dollar is experiencing enhanced safe haven status at present as the Swiss and Japanese economies are coming under increasing pressure. Yesterday Japan posted the largest budget deficit in 13 years following significant declines in it's level of exports. The repatriation of US Dollars in times of market unease has led to significant Dollar support of late. Economists predict the US unemployment rate could rise to 9.4% and remain elevated until 2011 as the economy recovers from recession. Not only is the growing unemployment rate a symptom of economic decline, it also inhibits recovery through lowered consumer confidence and unfulfilled economic potential. Ben Bernanke is to speak in the US today.
Euro - European Markets
The Euro has rallied against the US Dollar, Pound and Japanese Yen this morning as markets recover limited appetite for risk. The Euro is currently trading at 0.91 versus the Pound and 1.27 against the US Dollar.
Higher than expected earnings at Daimler AG and the European Aeronautic, Defence & Space Co have boosted European equities this morning and in turn, currency exchange rates. However, lack of policy direction from the ECB is still weighing on the Euro as the economic situation continues to decline. Figures this morning show the German trade balance is at 8.5 billion as export markets continue to contract. German CPI has risen 0.6% for the month of January, taking annual inflation to 1%. There is no further data in the Eurozone today with German factory orders out tomorrow.
Other Currencies - Highlights
The Australian Dollar reached 5 week highs against the Pound last night after the Government announced it was to increase its stake in Lloyds to 77%. The Reserve Bank of New Zealand is set to cut interest rates on Thursday and this could lead to a bout of NZD weakness against the major international currencies. Investor demand for the higher yielding currencies is likely to remain determined by risk appetite while the global financial situation remains volatile.
Japanese markets fell for the third day, pushing the Nikkei index to a 26 year low. Japan continues to be battered by reduced demand for its electronic and manufactured goods combined with the strength of the Yen making these products more expensive. Consumer prices in China have declined for the first time since 2002, dropping 1.6% in February from the previous year and threatening growth in the world's third largest economy. Japanese GDP figures are due tomorrow.