Pound Sterling - UK Markets

Sterling currency exchange rates strengthened over 30% on the euro yesterday and the pound surpassed 1.6 on the US dollar for the first time since November. This morning sterling has trimmed gains to trade at 1.59 on the dollar but remains strong against a basket of international currency partners.

The FTSE rose 2.1% yesterday on the back of better than expected consumer confidence figures out in the US. This fuelled demand for the higher yielding currencies and the pound rose to a seven-month high against the US dollar. The Confederation of British Industry also revealed a stronger than expected projection for the service sector in the third quarter. This week is light for UK data and sterling foreign exchange rates may take their cues from movements in equity markets. The Nationwide house pricing index released on Friday will be of interest to markets as house prices serve as a barometer for wider economic recovery.

US Dollar - US Markets

International currency exchange rates are mixed for the dollar this morning as improved market confidence has aided the distribution of funds throughout a wider range of foreign currencies. After declining against the euro and pound yesterday, the dollar is trading this morning at 0.71 and 0.62 respectively.

US consumer confidence for May showed a reading of above 50 - the number which separates a positive from a negative reading - from 40.8 in April. This was the greatest jump in six years and fuelled demand for the high yielding currencies. The dollar sunk to seven-month  low against the pound on the back of investor optimism. Economists in the US are predicting the recession could be over by the third quarter as more positive equities, government stimulus packages and thawing credit markets begin to take effect. Recovery in the labour and property market is expected to be a longer process. This week existing home sales are released in the US and the Treasury is auctioning USD 100 billion worth of debt. Both of these could provide a test for investor confidence and dollar strength.

Euro - European Markets

Euro currency exchange rates remain in the region of 1.39 against the US dollar and 0.87 against the pound as improved confidence drives demand for the single currency. The euro has also declined against the Australian and Canadian dollars while gaining against the yen, New Zealand dollar and Indian rupee this morning.

The European operation of General Motors is in the spotlight once again this morning as China has entered the buying contest at the last minute. Germany is expected to play a large role in the sale as the German government will provide billions in emergency finance for whoever purchases the business. GM owns four factories in Germany employing 50,000 people. Business confidence in the French manufacturing sector has risen for the second consecutive month in May, adding to signs that the recession is very slowly waning. Today is light for eurozone data with the German unemployment rate and EMU consumer confidence due tomorrow.

Other Currencies - Highlights

The New Zealand dollar gained ground against the pound overnight as New Zealand business confidence also improved across a wide range of sectors. This morning however New Zealand's foreign currency exchange rates declined after Fonterra announced it was cutting its forecast for milk prices. Fonterra is the world's largest dairy company and this is bad news for the New Zealand dairy sector. The New Zealand budget is announced on Thursday and we can expect some NZD volatility in the run up to this announcement.

Japan posted an unexpected trade surplus for April as the rate of contraction in export markets eased. With US consumer confidence growing the most in six years, there is a growing consensus among economists that the worst of the credit crunch is easing and export levels are entering more stable territory. Japanese retail trade figures are announced this afternoon.