Pound Sterling - UK Markets

Foreign exchange rates for the pound reached a four-month low against the euro yesterday as the rate of UK inflation fell and US retail sales rose. This morning currency rates for the pound remains weak, trading in the region of 1.12 against the euro and 1.65 against the US dollar.

UK unemployment increased by 210,000 in the month to July, taking the total number of unemployed to 2.47 million or 7.9%. Average earnings in the UK also increased by 1.7%, slightly lower than last month's figure. Mervyn King commented yesterday that the uncertain nature of UK recovery could necessitate further interest rate reductions in an attempt to stimulate interbank lending. Today sterling exchange rates are likely to be affected by US inflation figures and UK retail sales data is released tomorrow.

US Dollar - US Markets

Foreign exchange rates for the US dollar are weaker this morning against its international currency partners, sinking over 1% against the Australian and New Zealand dollars on the back of higher risk appetite. The greenback is currently trading at 0.68 versus the euro and 0.60 versus the pound.

Yesterday the US dollar strengthened against the pound after the Bank of England governor, Mervyn King suggested that further stimulus could be necessary for the UK economy. US retail sales figures were positive, rising 2.7% in the last month as the Fed's "cash for clunkers" boosted spending and sent new vehicle sales over 5% higher. Today we can expect some further currency volatility as the US consumer price index and industrial production figures are due.

Euro - European Markets

Euro foreign exchange rates spiked yesterday, rising to a four-month high against the pound after bearish UK inflation figures. This morning the single currency is trading at higher levels against the US dollar, pound and euro, while declining against its Asian currency partners.

Weak inflation forecasts in the UK allowed the euro to consolidate against the pound yesterday, while strong retail sales in the US led the euro higher against the US dollar. This morning the EMU consumer price index has come in positive at 0.3% on the month with core inflation running at 1.3%. The ZEW index for Switzerland has also improved to 58. There is no further data in the eurozone today with construction output and trade balance figures due tomorrow.

Other Currencies - Highlights

Foreign exchange rates for the South Korean won are largely unchanged this morning after the unemployment rate came in steady at 3.8%. South Korea is on track for 3% growth next year after slashing interest rates to 2% and inflation rates remains stable in the country.

Foreign exchange rates for the Australian and New Zealand dollars rose to their highest level in 2009  against the US dollar, after risk appetite grew in the market following strong US retail sales. Australian leading indicators also came in more positive than expected sending the Australian dollar to 86.94 US cents while the New Zealand dollar reached 71.02 US cents.