Market rallies exclude Sterling
Pound Sterling - UK Markets
The Pound fell to a 3 month low of 1.36 against the US Dollar yesterday and a five week low against the Euro, pressured by a combination of risk aversion, market unease and negative economic data from the UK. This morning the Pound has been trading in the vicinity of 1.37 versus the Dollar and 1.08 versus the Euro. The Pound has trimmed losses against the Australian and Kiwi Dollars although remains weak against its international currency partners.
Uncertainty surrounding the Bank's quantitative easing programme and sharp declines in manufacturing and industrial production weighed on Sterling overnight. The Bank of England is to embark on a £75 billion quantitative easing programme today, which is designed to stimulate the UK economy over the next three months. Figures yesterday showed a 2.9% decline in the manufacturing sector prompting speculation that UK output could slump by 4% in 2009. Manufacturing output has now been in decline for 11 consecutive months and analysts are predicting the -1.5% contraction in the final quarter of 2008 could be repeated in the first quarter of 2009. Goods trade balance figures released this morning show a current deficit of -£7.7 billion illustrating reduced demand for UK exports and this could also weigh on Sterling throughout the day. The rest of the week is light for UK data.
US Dollar - US Markets
Results for the US Dollar exchange rates are mixed this morning as improved appetite for risk has permitted minor rallies in the higher yielding currencies. The Canadian, Australian and New Zealand Dollar have all gained on the US, along with the Euro, Pound and Swiss Franc.
US markets rallied yesterday after Ben Bernanke boosted confidence by stating the US could be out of the economic slump by the end of the year. Citigroup, which is now 40% government owned, operated profitably for the first two months of 2009 and this news sent the Dow Jones up 300 points after touching on 12 year lows last week. The FTSE 100 also gained 5%. Bernanke emphasised in his speech that stability in the banking sector is still a prerequisite to economic recovery, implying that this has not been achieved as yet. Moody's has named a list of ‘bottom rung' American firms that are likely to go bust this year due to limited credit markets and global downturn. The list includes the big 3 car manufacturers, GM, Ford and Chrysler as well as a number of high profile media companies and casinos. US mortgage application figures are due out today.
Euro - European Markets
The Euro is largely unchanged this morning, trading at 1.26 against the US Dollar and up slightly against the Pound to 0.92. The Euro has also gained on the Swiss Franc, Australian and Canadian Dollars.
Switzerland's biggest bank UBS has posted a 20.9 billion Swiss Franc loss in 2008, the largest in Switzerland's history. The German producer price index released this morning shows a -1.2% price decline in January, a day after figures showed a sharp narrowing of the German trade deficit and a decline in French industrial output. Recession is progressing with gathering pace in the Euro zone. German factory orders are out later this morning and the ECB monthly report is released tomorrow.
Other Currencies - Highlights
Dominique Strauss Kahn, Managing Director of the IMF has made a speech in Tanzania predicting that world growth would be 0% this year. Strauss Kahn has dubbed the economic downturn the ‘Great Recession' and the IMF expect growth rates in Africa to significantly decline due to a lack of foreign investment in the region.
Australian business conditions have deteriorated to the lowest levels since the early 1990's. The Australian and Kiwi Dollars gained ground overnight following Ben Bernanke's speech in the US which restored market confidence. Gains for the Kiwi will be limited by the pending RBNZ interest rate decision. New Zealand retail sales and Japanese GDP are due out tomorrow.