Pound Sterling - UK Markets

Sterling currency exchange rates have recovered to 1.58 against the US dollar this morning and sunk to 1.13 against the euro. The pound is also weaker against the New Zealand, Australian and Canadian dollars which have all taken advantage of weakness in the US.

Yesterday the pound dropped dramatically against the US dollar and euro after the Standard and Poor's downgraded the UK soverign debt outlook from "stable" to "negative". This is due to the high level of government debt which may reach 100% of GDP. Following the announcement the FTSE slumped and the pound shed three cents against the dollar in ten minutes. First quarter GDP figures released today show a -1.9% contraction in the first quarter and a -4.1% contraction for the year. British Airways has also announced an annual pre-tax loss of £401 million due to rising fuel costs and a weak pound. Monday is a bank holiday in the UK.

US Dollar - US Markets

The dollar weakened against 16 of its most traded currency partners overnight on the back of concerns over QE and government debt levels. The dollar is currently trading at 0.71 against the euro and has reached seven month lows against the Canadian, Australian and New Zealand dollars.

US foreign currency exchange rates have come under pressure amid concerns over government debt levels and the expansion of QE in the US economy. Having experienced relative stability in equity markets recently and with credit markets thawing, investors are able to consider the long term impact of QE and government debt on US exchange rates moving forward. Government debt is expected to become increasingly important as we move towards economic recovery. The Philadelphia Fed yesterday improved to 22.6 but this failed to move markets. Ben Bernanke is due to speak in the US today.

Euro - European Markets

The euro is broadly stronger this morning, climbing to 1.39 against the US dollar and 0.88 against the pound as the single currency benefits from a decline in risk aversion. The euro is also benefitting from a weaker US dollar and concerns over government debt levels in the UK.

The euro is set to be the major beneficiary of an increase in risk appetite internationally. As investors seek to diversify their funds, euro foreign exchange rates are set to strengthen as the euro is the world's secondary reserve currency. Speculation that the US may lose its triple A credit rating saw the dollar dip to a four-month low against the euro yesterday. There is no major data in the eurozone today.

Other Currencies - Highlights

The Australian and New Zealand dollars have risen to seven-month highs against the US dollar on concerns that record debt sales in the US could endanger the government's credit rating. The Australian dollar climbed for the third straight day against the US on the back of gains in Asian equity markets overnight.

The Canadian dollar also surged to its highest level in seven-months against the US dollar as US jobless claims exceeded market estimates and concerns over government debt levels worried investors. This morning brought the fourth day of consecutive gains for the Canadian dollar against its US counterpart.