Pound Sterling - UK Markets

The Pound is weaker against the US Dollar, trading at 1.42 as investors remain risk averse in the wake of more negative economic data. The Pound is also down against the Dollar, Yen and Euro and has posted gains on the South African Rand and New Zealand Dollar.

Further trouble in the banking sector has put Sterling under pressure this morning as banking giant HSBC has announced a £12.5 billion fundraising drive to underwrite losses as a result of the credit crunch. HSBC is Europe's largest bank and has recently revealed a 62% drop in profits. This news sent bank shares 10% lower this morning. Lloyds is also making headlines after striking a deal with the Treasury to insure £250 billion worth of bad debts through the Asset Protection Scheme. Lloyds is currently attempting to keep government ownership below 50%. UK Manufacturing PMI this morning is distinctly bearish, coming in at 34.7 and the Engineering Employers Federation (EEF) has predicted 140,000 manufacturing jobs will be lost as a result of the credit crunch. The EEF has predicted the manufacturing sector will contract by 8.6% this year. The extent of government support for the banking sector is likely to support the Pound in the long term yet Sterling remains vulnerable at present. The construction sector PMI is out tomorrow and the Bank's interest rate decision is due on Thursday.

US Dollar - US Markets

The Dollar is broadly stronger this morning, gaining on all it's major currency partners with the exception of the Japanese Yen as low investor confidence favours safe haven currencies. The Dollar-Pound exchange rate is currently 0.70 while the Dollar-Euro rate is at 0.79.

Figures on Friday revealed the US economy shrunk an annualized 6.2% in the fourth quarter of 2008 while consumer spending declined 4.3%. These figures were worse than expected and sent global equities into retreat over the weekend. Consumer confidence accounts for 70% of GDP in the US and as such, is closely linked to business confidence and market sentiment. This news, combined with reports that AIG may need a further cash injection has sent Wall Street along with European and Asian equities plummeting and served to strengthen the US Dollar this morning. Last week the Federal Reserve agreed to convert up to $25 billion of Citigroup shares into common stock to support the bank during credit crisis. Personal income and spending figures are due in the US today and this is also likely to impact on market confidence.

Euro - European Markets

Results are mixed for the Euro this morning, having declined against the US Dollar, Yen and Swiss Franc while posting gains against Sterling and the New Zealand Dollar. The Euro-Pound exchange rate is currently 0.88 while the Euro-Dollar exchange rate is 1.26.

The Purchasing Manager Index released in Germany this morning is down to 32.1 for the month of February as manufacturing orders have decreased sharply with contracting export markets. The Purchasing Manager Index for the Eurozone fell to 33.5 for February, a figure largely in line with market expectations. European equities are weaker this morning due to a surge in risk aversion following the reported nationalisation of AIG. The UK FTSE fell 3.2% while Germany's Dax index fell 2.76%. Eurozone unemployment has risen more than expected in January, while inflation reached its lowest point in 10 years. The ECB is expected to provide a 0.5% reduction in the base rate when it meets in Thursday

Other Currencies - Highlights

The Australian and New Zealand Dollars declined against the Pound late last week after risk aversion heightened with weak GDP figures from the US. The RBA interest rate decision is due tomorrow and this will be a source of volatility for the Aussie Dollar. South Africa has managed to lower its unemployment rate despite economic contraction, as the construction industry added jobs ahead of the next FIFA world cup. The unemployment rate declined to 21.9% with the jobless number falling from 4.12 million to 3.87 million.