Pound Sterling - UK Markets

The pound is trading above 1.54 against the dollar this morning, its highest level in 2009 against the greenback. The pound has also climbed above 1.13 on the euro and is up nearly 1% on the yen as improved risk appetite has stimulated demand for the UK currency.

Sterling exchange rates have improved on the back of global recovery prospects, more positive economic data over the last few months has seen investors begin to diversify their foreign currency reserves leading to improved exchange rates for the pound and euro in particular. Throughout the second half of the year as evidence of recovery begins to emerge, we could see more scope for sterling strength against the yen and US dollar. This morning the UK consumer price index has risen by 0.2% for April, climbing 2.3% on the year while the retail price index has also climbed in April, by 0.1%. Profits at retail giant have declined by GBP400 million and the company has slashed its shareholder dividend by one third. UK retail sales figures are due later in the week with the Bank of England minutes out tomorrow.

US Dollar - US Markets

The dollar has weakened against the pound and euro overnight and is trading at lower levels against a basket of international currency partners this morning as improved economic data supports the view that the global economy is stabilizing.

A speech from Treasury secretary Geithner in which he commented that the US economy had stabilised prompted a rally in equity markets yesterday. This boosted currency exchange rates for the higher yielding currencies at the expense of the safe haven dollar and yen. This morning, news that Goldman Sachs, Morgan Stanley and JP Morgan Chase & Co. are planning a USD45 billion refund to the government has added to the view that the banking sector is beginning to recover. US housing starts are due out today and are expected to show an improvement in April as the slump in house prices is beginning to generate buyer interest. Minutes from the FOMC meeting are released tomorrow.

Euro - European Markets

The euro has climbed back to 1.36 against the US dollar and gained against the Japanese yen this morning as improved confidence aids the distribution of funds outside the safe havens. The euro is trading lower against the pound, Australian, New Zealand and Canadian dollars as well as the South African rand.

Yesterday the eurozone posted an unexpected trade surplus in March with seasonally adjusted figures showing exports strengthened by 1.6% in February. Imports increased by 0.4%. While this data shows a significant contraction for trade on the year, it also shows trade is beginning to recover after the eurozone slipped into recession in mid-2008. The euro has also rebounded ahead of the German ZEW economic survey out this morning which is expected to show an improvement in business confidence in Germany.

Other Currencies - Highlights

Asian equities advanced overnight as a strong Wall Street session yesterday translated into gains for many of the Asian currencies. The euro, pound and US dollar have all gained ground against the yen and the Nikkei index climbed by over 2% yesterday. The Indian rupee has gained another 50 paise against the US dollar to trade at 47.6 this morning as the election of Manmohan Singh's Congress Party has increased optimism over future economic reforms.  

Glenn Stevens, governor of the Reserve Bank of Australia, has claimed the Australian economy will be supported by interest rate cuts and commodity demand from China. The Australian dollar climbed to its highest level in a week against the US dollar, boosting the New Zealand dollar along with it. The Reserve Bank of Australia has predicted the Australian economy is well placed to weather the recession due to its strong commodity orientation and effective economic policy. Consumer confidence and wage price figures are due in Australia tomorrow.