Germany says it may have to bail out Ireland

Germany has admitted that Ireland, or any other eurozone state weighed down by the financial crisis, could not be allowed to collapse and would have to be bailed out by other eurozone members.

German finance minister Peer Steinbruck said it would be intolerable to let fellow EMU members fall victim to the global financial crisis. "We have a number of countries in the eurozone that are clearly getting into trouble on their payments," he said. "Ireland is in a very difficult situation. The euro-region treaties don't foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty."

Fears are mounting that Ireland may not be able to cover the massive liabilities of its banking system.

Pound falls to a 2-week low against the dollar after BoE minutes

Sterling fell to a two-week low versus the dollar this morning after the Bank of England's February meeting minutes showed a unanimous vote to begin unconventional monetary easing measures. The Monetary Policy Committee voted to seek government approval for a policy of quantitative easing, in addition to opting by an 8-1 vote to cut rates by 50 basis points. David Blanchflower voted for a 100 basis point cut, saying there was no time for delay.

The minutes also suggested further rate cuts were likely, saying that cuts would be needed to hit the central bank's inflation target. The pound dropped sharply to a two-week low of $1.4094 following the release of the minutes.

Pound stronger against the euro

The pound enjoyed a successful day against the single currency yesterday after consumer price inflation fell less than expected. The euro was also hit after Moody's ratings agency said the recession in Eastern Europe would affect Austrian, Italian, French, German, Belgian and Swedish banks due to their exposure to the region. The Moody’s report did cause concern in equity markets, as risk aversion reigned, capping the gains made by the pound.

In early trading today, the euro is rallying after European banks reported fourth-quarter results that beat some analysts’ forecasts, easing concern that the region’s financial crisis will worsen. Investors will have a particularly close on eye the Bank of England minutes released this morning, to give an idea of where interest rates are heading in the coming months and any further clues over the possibility of quantitative easing in the UK.

Dollar strengthens against sterling

An increase in risk aversion resulted in strengthening of the dollar against most major currencies. The dollar benefited from safe haven flows yesterday as major equity markets slumped deep into the red on increasing fears about the ongoing financial turmoil. Sterling fell 3% against the dollar following Moody’s downgrade of Barclays and more gloomy economic data, and as investors brace themselves for another interest rate cut from the Bank of England.

There are several significant announcements taking place in the US today including MBA Mortgage Applications and the Import Price Index. In the UK, CBI Industrial Trends Survey data will be released at 11.00 GMT.

Euro falls to 2 month low against US dollar

The euro fell below 1.26 against the dollar for the first time since early December yesterday, after Moody’s said it may cut the ratings of several banks with units in Eastern Europe, adding to concerns that financial turmoil may deepen. Eastern European banks, which are mainly subsidiaries of financial institutions based in Austria, Italy, France, Belgium, Germany and Sweden, are likely to come under “downward pressure” that may weaken their parent companies. It is therefore likely sentiment on the euro will become increasingly bearish as the financial downturn deepens.

The dollar also gained support as stock markets fell yesterday, which made the US currency more attractive as a safe haven.

Construction Output data is released in the eurozone this morning, while MBA Mortgage Applications, Housing Permits, Import Price Index and Industrial Production figures are released in the US this afternoon, in addition to the minutes from the recent Federal Open Market Committee Meeting.

New Zealand dollar battered by risk aversion

The New Zealand dollar was battered against the pound yesterday as tumbling stocks pushed investor risk aversion higher. Fears of a downturn in Europe and further weak data out of the US had demand for higher yielding currencies fall sharply. With only second tier data due over the next few days the kiwi will be lead by global market movements.

Aussie dollar tumbles

The Australian dollar tumbled against sterling yesterday, as fears about recession kept investor risk aversion high. Stock markets fell, largely dragged down by the banking sector over the EU's potential exposure to Eastern Europe’s shaky banking sector. Data yesterday revealed a smaller than expected fall in British inflation, but this is unlikely to impact on the BoE’s monetary easing. The BoE releases the minutes from its last meeting later today, although it is unlikely to have the same impact as previous releases. This is due to last week’s inflation report and comments from BoE Governor Mervyn King that further policy easing was likely.