Pound Sterling - UK Markets

The pound has gained on the US dollar and is currently trading at 1.58, significantly stronger than the 1.55 level earlier in the week. Sterling is also trading at some of the best currency exchange rates in 2009 against the euro and yen on the back of improved investor confidence.

UK retail sales climbed by 0.9% in April putting the UK on track for a 2.6% annual rise in consumer spending. This figure however, is somewhat unreliable as the fact that Easter occurred in April this year creates some seasonal distortion. The Bank of England minutes released yesterday were in line with market expectations yesterday and unanimous MPC decision led the pound to strengthen against the dollar and single currency. The pound has risen over 5% against the US dollar this month, on track for its largest monthly gain in over a decade. First quarter GDP figures are due in the UK tomorrow.

US Dollar - US Markets

The dollar is broadly weaker this morning against its international currency partners, trading at 0.72 against the euro and 0.63 against the pound. The dollar has also lost ground against its Asian currency partners.

Minutes from the FOMC meeting referred to a potential increase in quantitative easing and this weighed on the dollar yesterday. Uncertainty surrounding QE may affect the dollars status as a reserve and equities are in negative mode this morning. However, the weaker dollar has had little affect on international currency exchange rates suggesting the view the economy is bottoming out could be gaining some traction. Markets will be interested in the Philadelphia Fed manufacturing survey due today as this is a good indicator of export levels.

Euro - European Markets

The euro has climbed above 1.38 on the US dollar this morning, significantly higher than last week's best currency exchange rate. The euro is also stronger against most of its international currency partners after comments from the Portuguese finance minister that the strong euro was not a concern of the ECB.

Economic decline in the eurozone has slowed even further in May with both the manufacturing and service sector reporting a more moderate decline. PMIs are regarded as a reliable gauge of private sector activity and the positive figures have led the euro to strengthen this morning. With little data out in the eurozone for the rest of the day the euro-pound exchange rate is likely to be affected by market reaction to UK retail sales and employment data out in the US.

Other Currencies - Highlights

The pound gained over two cents on the New Zealand dollar yesterday. The two currencies are locked in a volatile trading relationship at present as the extent of recession and start of recovery remain unclear. International currency exchange rates for the New Zealand dollar have climbed this week, shadowing gains made by the Aussie and reports of economic improvement in Asia.

Canada's annual inflation rate has fallen to 0.4%, the lowest since 1994 on the back of plummeting energy prices. Energy prices have fallen 25% in the last year and consumer prices fell 0.1 on the month. This gives the Bank of Canada more scope to keep interest rates low and the Canadian dollar has gained over 1% on the US dollar overnight.