Pound Sterling - UK Markets

The pound reached a new four-month high against the dollar overnight, touching on 1.53 before moving back to below 1.52 this morning. Positive UK trade data yesterday boosted sterling exchange rates, sending the pound higher against the yen, US and New Zealand dollars.

The UK trade deficit for goods and services has narrowed much more than expected, supporting the view that recession is easing in the UK. The Bank of England Quarterly Inflation report is due this morning accompanied by a speech from Governor King. Markets will be interested in how quantitative easing is progressing. The affect of quantitative easing on the economy is yet to become apparent and risks associated with the strategy, such as inflation and currency depreciation continue to play on investor nerves. ONS figures released yesterday show unemployment in the first quarter increased to 2.2 million, the worst result since 1980. Falling city bonuses have also pushed wage growth into negative territory and the official unemployment rate is 7.1%.

US Dollar - US Markets

The dollar has lost ground against its international currency partners this morning as improved market confidence has aided the distribution of funds throughout the higher yielding currencies. The dollar has declined against the yen, euro, pound, Canadian dollar and Mexican peso.

Speculation that the global slump is easing drove the dollar down to a four-month low against the pound and a seven-week low against the euro overnight. At present equities remain in consolidation mode, awaiting confirmation of global recovery. Reports from China added to the view that the worst of the economic crisis may be over as retail sales improved in April. The US, China, India and Brazil are expected to be major drivers of global economic recovery. Shares in General Motors slumped yesterday to their lowest level since the depression as major stakeholders dumped shares, prompting speculation of imminent bankruptcy. US retail sales are due today along with the import price index for April.

Euro - European Markets

The euro reached a new seven-week high on the dollar overnight, touching on 1.37 as investors favour the single currency amid improved economic reports. This morning the euro exchange rate remains bullish, gaining against the US dollar, yen and pound but falling against the Australian dollar, Swedish kronor and Swiss franc.

The IMF has called for European banks to be "stress tested" like those in the US to help restore confidence in the banking sector. The IMF has also predicted a wide contraction across emerging and established economies in the eurozone. France and Italy have both reported a substantial decline in industrial production figures in March. Despite this, the euro rate has strengthened over the last week, particularly against the US dollar as the prospect of global recovery stimulates demand for the single currency. Industrial production figures for the eurozone are released this morning.

Other Currencies - Highlights

Retail sales in China climbed 14% in April from the previous year and this news drove shares in appliance makers and oil prices higher. China is expected to be a major driver of global economic recovery and the news of improved consumer demand in the Chinese market boosted currency exchange rates throughout the world.

Japan's current account surplus narrowed at the slowest rate in 6 months in March as the contraction in export markets has eased. The drop in import levels has also eased compared to recent months. Although a recovery in global trade is expected to be a lengthy process, such figures illustrate the contraction in import and export markets is easing. Yen exchange rates have declined recently as the improved market confidence has reduced demand for safe haven currencies.