Pound finishes marginally up against the euro

In a relatively quiet day for trading, the pound finished marginally up against the single currency despite the FTSE 100 tumbling 3.5%. Banks led the fall in equity prices following the US rejecting plans for carmakers, prompting worries over the future of the industry. Investors promptly became risk averse, with safe haven currencies being the main beneficiaries. The UK was boosted as mortgage approvals grew almost twice as much as expected in February, and to the highest level seen in almost a year.

News out of the eurozone was poor, with Spain and the Republic of Ireland releasing negative news. It was revealed that the Bank of Spain will take over the Caja Castilla la Mancha, which is the first bank bailout in Spain since the credit crisis reared its head. Shares in other major Spanish banks, such as Santander and BBVA, fell over concerns of the health of the Spanish financial sector. Spain has been hit hard in the past 18 months, with unemployment climbing towards 15% and the housing sector becoming increasingly sluggish. It was also revealed that Standard and Poor’s cut Ireland’s credit rating from AAA to AA+ yesterday, over concerns of the country’s worrying public finances. The agency also warned that the rating could be cut again as debt levels increase.

The UK releases their index of services data this morning, whilst the eurozone reveals their consumer price index figures.

Pound posts small gains against the dollar despite risk aversion

The pound strengthened over the US dollar by 0.33 cents in Monday’s trading to close at the 1.4264 level. Earlier in the day the pound had hit a low of 1.4113 as equity markets fell, risk aversion spread and jitters surfaced ahead of the G20 meeting this week. UK shares fell as much as 3.5% after the US government’s ‘auto task force’ rejected viability plans from General Motors and Chrysler and warned that bankruptcy remained an option. However, the pound did pare its losses in later trading and there were some positive announcements in the UK yesterday - mortgage approvals rose to 38,000 in February from 34,000 in January and the GFK Consumer Confidence index improved.

In today’s trading there has been little movement as investors await the announcement of consumer confidence data, the S&P/Case-Shiller Home Price Index, Chicago Purchasing Managers’ Index and the ABC/Washington Post Consumer Confidence in the US. Whilst there are no major economic announcements in the UK today, investors will be paying close attention to British news ahead of tomorrow’s G20 meeting.

Euro weakens against the dollar as equities fall

The euro weakened against the dollar yesterday following a fall in US stocks. Additionally the Obama administration proposed that the best chance for success for General Motors Corp. and Chrysler LLC may be bankruptcy, while Treasury Secretary Timothy Geithner stated there could be further government assistance in relation to supporting some banks. The euro reached a one and a half week low against the dollar, hitting $1.3117 amid thin trade, as investors await the G20 summit and the ECB’s interest rate decision on Thursday, where they are expected to announce an interest rate cut as well as quantitative easing.

ECB President Jean-Claude Trichet addressed the European Parliament yesterday, stating that the eurozone economy has weakened since January and that there is "a high degree of uncertainty" with regards to economic outlook. Nevertheless, he said there are no substantial risks for deflation and that the central bank will do what is required to abate the financial crisis. This statement improved the euro slightly, following its increasing weakness on the back of news that Standard & Poor's Ratings Services lowered Ireland's long-term sovereign credit rating to 'AA+' from 'AAA.' S & P also downgraded Hungary’s credit rating on Monday to BBB-.

The Consumer Price Index will be released in the eurozone this morning at 10.00 BST. In the US, Consumer Confidence, Chicago Purchasing Managers’ Index and ABC/Washington Post Consumer Confidence will be announced this afternoon.

Kiwi helped by improved business confidence

The New Zealand dollar lost ground to the pound yesterday, remaining largely on the back foot as recent investor optimism was again replaced by risk aversion as equity markets began to drop off recent highs. However, the kiwi dollar recovered some ground overnight after New Zealand Business Confidence came in slightly improved some risk appetite returned to the market.

Aussie dollar weakens before recovering overnight

The Australian dollar weakened against the pound yesterday, retracing some of its previous weeks' gains. The aussie was hit by a decline in equity markets and heightened risk aversion, due largely to the US government’s rejection of plans for further funding for two of the world’s largest car makers. However, the aussie dollar recovered the lost ground overnight, helped by marginally better sentiment and speculation that the Reserve Bank of Australia may hold rates steady at next week's policy meeting.