Market Unease Continues
Pound Sterling - UK Markets
The Pound-US Dollar exchange rate has recovered this morning to 1.40 after sinking to 1.39 following market shocks yesterday. The Pound has also risen to 1.12 on the Euro and has gained against the Australian Dollar and Yen as investors regain some of their appetite for risk.
Consumer confidence in the UK increased by 2 points in February according to a survey by economic analyst Nationwide. This is the first positive movement since October 2008 as falling prices across all areas of the economy are providing good value for money. The CBI business organisation has also reported that while retail sales fell in February, the rate of decline had slowed. Economists are currently predicting an upturn in economic sentiment to begin in the second half of 2009. The credit crunch has reached the broadcasting sector with news this morning that ITV is set to slash 600 jobs. The broadcaster has been hit by reduced advertising revenue and is seeking to trim £65 billion from its programming budget after reporting a 41% drop in profits last year. The Bank of England interest rate decision is due tomorrow and the government is set to announce a variety of initiatives designed to stimulate the UK economy over the coming days.
US Dollar - US Markets
Results are mixed for the US Dollar this morning as a slight increase in risk appetite redistributes funds amongst the higher yielding currencies. The Dollar is up over 1% on the Yen and has gained against the Euro and Swiss Franc while suffering declines against the Pound, Canadian and New Zealand Dollar.
The MSCI World Index gained ground yesterday for the first time in six days following speculation that the US government would increase efforts to improve the economy. European and Asian equities shadowed Wall Street's gains and currency exchange rates received a boost on the back of improved confidence. However these gains were tempered Ben Bernanke's warning that the US banking system still had not stabilised and AIG may need to find another source of capital. The viability of AIG is regarded as crucial to the health of the entire financial system due to the sheer scope of its investments. As such, the US government is committed to its success and may have to provide further funds. Employment change figures and the Fed's beige book are due out tomorrow.
Euro - European Markets
The Euro is broadly weaker this morning against it major currency partners with the exception of the Japanese Yen and the Swiss Franc. The Euro-Sterling exchange rate is currently at 0.89 while the Euro-US Dollar rate is 1.25.
European equities have experienced a mild recovery overnight with the European Dow Jones rebounding 1.5% from its lowest level since 1996. France Telecom, the third biggest phone company in Europe has announced a 35% profit loss for 2008 and European General Motors has asked for a further 3.3 billion in government aid as the recession continues to affect industry giants throughout Europe. The automobile industry is a major casualty of the credit crunch as consumers hold off spending on big ticket items. General Motors in the US has received $30 billion in government aid and is still in a precarious financial position. The German service sector PMI has declined to 41.3 in February while PMI in the Eurozone fell to 39.2 from 42.2 in January. This is a record decline as the Eurozone slashed more jobs than ever this February. There is no further data today with EMU GDP and the ECB interest rate decision due tomorrow.
Other Currencies - Highlights
The Australian Dollar maintained its strength against the US Dollar overnight after the Reserve Bank opted to leave interest rates unchanged at 3.25%. Statistics released this morning show Australian GDP contracted -0.5% in the fourth quarter of 2008 taking annual growth to 0.3%.
The Canadian Dollar touched on a three month low against the US Dollar after the Bank of Canada cut interest rates by 0.5% yesterday. The Central Bank reduced the cost of borrowing to 0.5%, the lowest level on record following a sharp contraction in fourth quarter GDP. The Bank also signalled that more unconventional policy could be employed in future raising speculation of quantitative easing for the Canadian economy.