Sterling sluggish against the single currency

The pound was sluggish against the single currency yesterday, after official data in the UK revealed that state debt, including estimates for the liabilities of recently nationalised banks, has jumped to £2.2 trillion – equivalent to around 150% of GDP. It was also revealed that tax receipts were almost £7bn lower than the same month last year, confirming how much the economy has slowed in the past year.

Bank of England Deputy Governor John Gieve said yesterday that policy makers are fighting to protect Britain from the threat of a decade-long depression similar to that suffered by Japan in the 1990s. Gieve has also confirmed that quantitative easing is likely to start in the next few weeks. It should be noted that the euro is coming under increasing pressure as well, especially if, as expected, Jean Claude Trichet confirms today that interest rates are set to fall next month.

Sterling experiences mixed trading against the US dollar

Sterling strengthened against the US dollar yesterday morning as risk aversion dropped off a little following a rise in equity markets and optimism that the US housing initiative may help the global economy. However, the dollar recovered its losses overnight as falling share prices in Asia and nervousness about the Japanese economy caused a sharp decline in risk appetite. Continued speculation about the recession in Eastern Europe also drove investors to the safety of the US dollar.

The Consumer Price Index is released in the US at 13.30 GMT today, while British Retail Sales figures will be released at 09.30 GMT this morning.

Euro's initial gains against dollar pared back

The euro strengthened over the US dollar yesterday, reaching as high as 1.2759 as investors waited for word from German Chancellor Angela Merkel as to how Germany may help other struggling eurozone economies. Speculation about US jobless claims figures also saw the dollar undermined. However, the euro's gains were pared as Merkel declined to comment on how Germany could help its struggling neighbors. US Initial Jobless Claims data showed that 627,000 people lost their job in January and this undermined the dollar allowing the euro to close the day up 1.43 cents at the 1.2671 level.

In today's trading the dollar has strengthened back over the euro, reaching as low as 1.2569 after worse than expected Purchasing Managers Index data was released in the eurozone and as Asian traders continued to be worried about the health of the European banking sector. The only other significant economic announcement today comes in the form of US Consumer Price Index figures.

New Zealand dollar weakens due to deepening local recession

The New Zealand dollar weakened yesterday, as markets remain cautious over the health of the global financial sector. A survey released yesterday suggested that the local recession had continued into the fourth quarter with little prospect of recovery before 2010. Today the kiwi is likely to continue to be directed by broader market movements.

Aussie dollar makes small gains following Obama's housing plan

The Australian dollar made small gains against the pound yesterday, on the back of improved risk appetite from optimism that a US housing bailout plan may boost the global economy. However, the optimism was only temporary, as a fall in Asia stocks and speculation about the Japanese recession forced investors to sell off the high yielding aussie. The pound is still likely to remain under pressure on the prospect of further monetary easing by the BoE, including quantitative easing. Earlier in the day data revealed Britain's budget deficit for the fiscal year is at a record high. Public sector debt was also at a record 47.8 percent of GDP. Investors will largely focus on UK retail sales figures and equity markets for direction today.