Pound Sterling - UK Markets

The pound is up over 1% on the dollar and euro this morning as the FTSE climbs to a four month high. Sterling is currently trading above 1.5 on the dollar and 1.12 on the euro but has lost ground against the Australian, New Zealand and Canadian currencies.

The London FTSE gained 2.5% this morning to touch on the highest levels since mid January as traders returned from a bank holiday weekend in the UK. RBS and Lloyds both gained over 10%. Prospects of economic recovery in 2010 are fuelling the bullish trend in equities as PMI's show the pace of recession easing in the UK. Statistics from the British Banking Association showed lending to small businesses increased by £270 million in March and new mortgage approvals climbed by 39,000. The rally is also despite more than 5000 British jobs being put at risk as General Motors is set to merge with Fiat. This morning BAA has also reported a 10% drop in passenger numbers. We could see some exchange rate volatility this week with the Bank of England meeting on Thursday. Today the Nationwide consumer confidence survey is released.

US Dollar - US Markets

The dollar is broadly weaker this morning, declining over 1% against the Aussie and Kiwi currencies. The dollar to euro exchange rate is in the region of 0.74 while the sterling exchange rate is hovering around 0.66. The dollar has also lost ground against the Japanese yen and other European currency partners.

Results of the stress tests on US banks are due out this week and they could show as many as 10 companies in need of additional capital. This news has failed to halt the upward momentum in equities as economists are predicting the clarity and certainty the results will provide will benefit markets in the long term. Pending home sales have increased by 3.2% in March while construction spending is up by 0.3%. This prospect of recovery in the property market has also added to positive market sentiment. Oil has climbed to $54 a barrel with copper and other commodities also posting gains. The Washington Post consumer confidence survey is out today.

Euro - European Markets

The euro has climbed above 1.33 against the US dollar and dipped slightly against the pound as market confidence improves appetite for risk. The euro has also gained against its major Asian currency partners while declining against the Swedish kroner and South African rand.

The European Commission has predicted that the 16 nation eurozone economy will contract by 4% this year. This is more than twice as bad as initially thought and the EC predicts grim months ahead with the eurozone unemployment rate reaching 11%. Spanish unemployment is expected to top 20%. This morning UBS, Switzerland's biggest bank, has confirmed a CHF2 billion loss in the first quarter, largely due to write downs from risky investments. However there are some positive signals from the eurozone with the PMI for manufacturing climbing upwards in April. The ECB is expected to reduce the repo rate by 0.25% at this Thursday's meeting.

Other Currencies - Highlights

The Australian dollar reached seven month highs against the US on Monday on the back of improved investor confidence. The RBA decision to leave interest rates on hold at 3% has capped any further gains and additional cuts to the base rate are expected later in the year. Australian retail sales and trade balance are due out tomorrow.

The South African rand is currently trading at 12.5 versus the pound and 8.3 versus the dollar. The rand, which has been one of the strongest performing currencies this year, is currently regarded as overvalued by economists. While the rand has strengthened on the basis of growth prospects and improved commodity prices, economists claim the strong rand is undermining export competitiveness, crucial to the export orientated economy.