Exchange rates update

Please find an update of the current interbank exchange rates as of 13.45. In the future Caxton will publish these rates at midday each weekday.

Please click on the table to enlarge it.

Little change on sterling/euro

Sterling was subdued against the single currency on Friday, and remains so in early trading today as investors remain cautious about the UK’s economy. The pound did enjoy a positive start on Friday following the release of better than expected retail sales data, following the heavy discounts on the high street last month to lure consumers in. However, major concerns surround the rising unemployment in the UK and the state of the financial sector. It is expected that this week will bring more initiative to support the banking sector, including the bank insurance program for toxic assets.

With no significant economic releases due from the UK or the eurozone today, the GBP/EUR rate will take its direction from broader market movements.

Risk appetite leads to mixed performance on cable

Increased risk aversion strengthened the US dollar against most major currencies on Friday, as unsteady equity markets and a bleak global economic outlook resulted in investors fleeing to the safe haven of the greenback. However, the dollar failed to capitalise on this when it came to the pound, as the release of a larger than expected rise in British retail sales offered sterling some support. The surprisingly positive data boosted confidence that UK consumers are more resilient than previously thought, although the pound’s gains were limited amid ongoing concern about rising unemployment and a deepening recession in the UK.

Sterling has gained further ground against the US dollar this morning, as share prices rose after a Wall Street Journal report suggested Citigroup was in talks that could see the US government hold as much as 40 percent of the bank’s common stock. The dollar weakened and higher yielding currencies strengthened as risk appetite rose following the report, because it is viewed as a step that would help remove some uncertainty surrounding the lender for now.

In the US today Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, will be giving a speech on the US economy at 17.40 GMT. There are no significant announcements taking place in the UK today.

US dollar hurt by improved risk appetite, Citi seeks government assistance

The euro strengthened against the dollar by 1.53 cents on Friday, to close the day at the 1.2824 level and in the process posted gains of 0.37 cents on the week. Fears about the strength of both the dollar and the US banking sector led investors to sell the dollar and lock in profits from its recent strength before the weekend. Fears that Washington could be forced to nationalise some of the largest US banks surfaced after US Senate Banking Committee Chairman Christopher Dodd said that it may be necessary "at least for a short time". Some traders have taken this news as a suggestion that the US government will not allow any more banks to fail and as such risk appetite improved, despite falling stocks, which saw the dollar's safe haven bid eroded.

In today's trading the dollar has continued to weaken after it was reported that Citigroup is in talks that would see the US government take a large amount of its common stock. The Wall Street Journal stated that the government could end up owning as much as 40% of the struggling financial giant, although Citigroup executives hope to limit this share to 25%. This report has had the effect of further diminishing risk aversion and as a result investor demand for the dollar has fallen. The euro has also benefited from the suggestion that a plan may be implemented to help the ailing Eastern European economies after comments from Germany's foreign minister on Friday.

The only major announcement today comes from America where the Fed's Dennis Lockhart will make a speech. However, at the forefront of investors’ minds will be details yet to emerge of Obama's planned government spending. In an address to Congress tomorrow, followed by the outline of his first budget on Thursday, Obama will explain how he plans to cut the US budget in half by 2013, whilst pressing ahead with his plans to tackle healthcare, education and the environment. Some are skeptical that this can be done, especially as the government has now committed a staggering $3 trillion to aid the stricken banking sector, around $2 trillion of which will come from borrowing.

Aussie dollar weakens on increased risk appetite

The Australian dollar weakened against sterling over the weekend, after comments from US senate banking committee chairman Christopher Dodd that it may be necessary to nationalise some US banks for a short period. This lead to a increase in risk apetite as investors took this as suggestion that the US government would not allow another bank to fail. Meanwhile data on Friday revealed an unexpected rise in British retail sales for January compared with the previous month, as shoppers took advantage of post Christmas sales. Although this provided some support for the pound it was largely overshadowed by downbeat European data, which is likely to continue to be a drag on the UK economy.

Kiwi dollar's woes continue

The New Zealand dollar remained on the back foot over the weekend as falling stock markets and more gloomy economic news kept investor risk aversion high. Added to the pressure on the kiwi were figures released on Friday revealing the government deficit for the 6 months until December worsened to NZ$6.22 billion. This was well below a forecast NZ$2.19 billion surplus and kept the kiwi under pressure, given Standard and Poor’s warning last month that New Zealand risked losing its current credit rating if the government could not come up with a credible fiscal plan to tackle the imbalances in the economy.