Pound Sterling - UK Markets

Sterling currency exchange rates have strengthened this morning on the back of improved market confidence internationally. Sterling is currently trading at 1.14 against the euro and above 1.6 on the US dollar, hovering near the seven-month high reached earlier in the week.

During yesterday's trading sterling exchange rates dipped on the back of comments from outgoing MPC member David Blanchflower as he stated there may be many "false dawns" before the recession is over. CBI distributive trades figures for April were also weaker than expected and this drove the pound down even further. However, long term trends for sterling remain positive as the global economy begins to recover. The UK is expected to grow at a faster rate than Japan and the eurozone in coming months. The Nationwide survey released this morning shows house prices increased by 1.2% in May although they are still 11.2% lower than one year ago. There is no further data in the UK today.

US Dollar - US Markets

Foreign currency exchange rates have dipped for the US dollar overnight as improved confidence leads investors to distribute their funds outside the world's reserve currency. The dollar has sunk 0.7% on the pound and 0.4% on the euro.

US figures released yesterday revealed a rise in new home sales and a decline in claims for unemployment aid. The upbeat economic data fuelled investor confidence and international foreign exchange rates climbed against the traditional safe havens. In the US, government debt levels and the balance of payment deficit remain crucial to growth predictions and confidence levels. As the world's largest importer of crude oil, rising oil prices could also have implications for the rate of US recovery. Preliminary US GDP figures out this afternoon are expected to project an annualized fall of 5.4%.

Euro - European Markets

The euro exchange rate has risen above 1.40 against the US dollar in early trading this morning, climbing 0.5% on the back of improved market confidence. Against the pound, the euro has declined to 0.87 and the single currency is also lower against the yen, Australian and kiwi dollars.

German retail sales have slid -0.5% for the month of April, taking the annual rate of decline to -0.8%. European equities have risen on signs of economic rebound and consumer price inflation figures, as well as the official unemployment rate are due out for the eurozone this morning. ECB President Trichet is also to deliver a speech today.

Other Currencies - Highlights

The Australian dollar rose above USD0.78 overnight, heading for a record monthly rise against the US dollar on the back of firmer commodity prices and global recovery prospects. The New Zealand dollar has also reached a seven-month high recently against the greenback.

Japanese unemployment has risen to 5%, from 3.8% last October as the slump in exports leads to rising joblessness. Deflation also persists in Japan, with core consumer prices falling 0.1% from one year ago and industrial production jumped 5% in April, the largest gain since the early 1950's. All of this data supports the market consensus surrounding the Japanese economy - that while recession is entrenched, the rate of decline is easing and we may be entering the trough of the downturn. The yen has weakened in recent weeks on the back of more positive market sentiment.