Pound Sterling - UK Markets

Sterling currency rates remain bearish this morning as risk aversion returns to the market. The pound has declined to 0.61 against the US dollar and remains in the region of 1.13 against the euro, while also falling against the yen, Australian and kiwi dollars as sterling sentiment remains weak.

The construction sector PMI has come in weaker than expected this morning at 47.7, slightly up from last months 47 reading but still below market expectations. Following the below forecast PMI for manufacturing yesterday, this is likely to keep sterling sentiment weak throughout the day. Yesterday was a downbeat day for equity markets, with the FTSE losing 1.8% and the S&P and Dow Jones falling over 2% each despite positive data in the US. There is no further data in the UK today with the service sector PMI due tomorrow.

US Dollar - US Markets

Currency rates for the US dollar are stronger this morning as risk aversion remains high in the market. The US dollar has climbed against the pound, New Zealand dollar and Brazilian real while sinking against the euro, yen and Australian currencies.

Yesterday's manufacturing figures showed the sector expanded at the fastest pace since January 2008, indicating that the US could be on the road to economic recovery. The Fed's "cash for clunkers" policy and record low interest rates have been widely credited for the recovery in the manufacturing sector and pending home sales figures also rose 1.6% on the month. The FOMC minutes are due this afternoon and these will be closely scrutinised for a shift in economic sentiment. The general consensus at present is that the US will return to growth in the third quarter.

Euro - European Markets

Currency rates for the euro are also mixed this morning, with the single currency rising against the pound, US and New Zealand currencies, while falling against the yen, Australian dollar and South African rand.

Consumer spending in the eurozone rose for the first time in over a year show figures released this morning, climbing 0.2% after falling -0.5% last quarter. Seasonally adjusted GDP figures for the second quarter have also confirmed initial estimates, showing a -0.1% contraction. Euro sentiment is positive at the moment as many major European companies have reported higher earnings while confidence improves and interest rates remain at record lows. EMU retail sales and an ECB interest rate decision are due tomorrow.

Other Currencies - Highlights

Australian currency rates are higher this morning after Australian GDP figures shocked markets with a 0.6% rise in the second quarter, well above the 0.3% forecast. This led to positive AUD sentiment and raised the possibility that rate hikes could happen as early as October. The AUD climbed to 83.04 cents against the greenback following the announcement.

Currency rates for the South African rand rose this morning, despite new figures showing that vehicle sales fell over 26% in the year to August as households cut spending in the recession. The South African currency has strengthened over 20% this year against the US dollar, driven higher by the rally in commodity prices, though there are fears this could undermine economic recovery for the export sector.