Pound Sterling - UK Markets

Following the UK bank holiday sterling exchange rates have opened on a weak note this morning, losing ground to the US dollar, yen and euro. The pound has climbed against the Australian, Canadian and South African currencies after a weak day in equity markets yesterday.

The UK PMI for manufacturing has come in this morning at 49.7, lower than markets were expecting after recording 50.2 the previous month. This pushed the pound a full 100 pips lower against the US dollar and is indicative of the shaky road to recovery the UK is likely to experience. UK mortgage approvals also came in weaker than expected this morning, rising by 50, 000 in July. Sterling exchange rates are likely to be affected by US data out this afternoon.

US Dollar - US Markets

Exchange rates for the US dollar are mixed this morning as the greenback has sunk against the yen, euro and major Asian currency partners, while climbing against the Australian and Canadian dollars. The greenback is currently trading at 0.69 against the euro and 0.61 against the pound.

US economic sentiment has improved over the previous week, as economists are predicting manufacturing has expanded in August for the first time in 19 months. This week is packed with US data that is likely to induce currency volatility, including the FOMC minutes, unemployment rate and average hourly earnings. Today construction spending figures are due, along with pending home sales which are expected to rise by 1.6%.

Euro - European Markets

Euro exchange rates have continued to strengthen this morning, climbing against its major currency partners, with the exception of the yen and South Korean won. The euro is currently trading at 0.88 against the pound and 1.43 against the US dollar.

Latest figures suggest that inflation is bottoming out in the eurozone, after rising from -0.7% in July to -0.2% in August. The eurozone unemployment rate rose 0.1% in July to 9.5%, though this has failed to move markets significantly and euro sentiment remains strong. The EMU PMI for manufacturing has also improved this morning, climbing to 48.2, more positive than markets were expecting. Seasonally adjusted GDP figures are due in the eurozone tomorrow.

Other Currencies - Highlights

Currency exchange rates for the Australian dollar have declined overnight as the Australian Reserve Bank opted to leave the official cash rate on hold at 3%, for the fifth consecutive month. Governor Glenn Stevens noted rates are "appropriate" for the time being quashing speculation of an October rate rise. Inflation in Australia is cooling and the economy is expected to have expanded 0.3% in the second quarter.
 
The manufacturing PMI for China has expanded to 54, at the fastest pace since April 2008. Record lending in the first half of 2009 has led the growth, while new orders rose above 56. The news had a positive impact on international equities, and has boosted currency exchange rates for the higher yielding currencies through increased appetite for risk.