Sterling headed for weekly loss against euro

The pound rallied against the single currency yesterday and reversed some of the previous day’s losses, as equity markets rose on the back of the government’s plan to insure banks’ toxic assets. The British government announced a scheme under which it could end up insuring more than £500 billion of bad assets in an attempt to get lending flowing again, with tentative signs showing that the worst of the banking crisis may be passing. The FTSE 100 responded well to this, boosting demand for riskier currencies, with sterling being one of the major beneficiaries.

There are no major announcements due in the UK today, whilst the eurozone reveals their Consumer Price Index figures this morning, giving an indication of inflation at present.

GBPEUR: 1 week chart. Click on graph to enlarge.

Little movement on cable

Sterling gained a little ground against the US dollar yesterday, helped by rising stock markets and the British government’s plan to insure against toxic assets for banks. The scheme, which is designed to remove uncertainties about the banks’ capital positions and enable them to focus on lending to customers again, could end up with the government insuring around £500bn in toxic assets held by UK banks. The news helped push shares higher, with the UK's FTSE 100 index rising by 2.2 percent, bolstering demand for riskier currencies such as the pound.

Data released in the US yesterday afternoon showed initial jobless claims reached a 26-year high, while sales of new homes fell 10.2% in January, to the lowest level since 1963. Figures also showed that durable goods orders were down 5.2% last month, and equity markets began to fall again following these releases, dragging the pound lower against the dollar.

There are several announcements taking place in the US today, including Gross Domestic Product and Real Personal Consumption Expenditures at 13.30 GMT. The dollar has continued to strengthen back over the pound this morning as investors are apprehensive about the release of this data.

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Poor US data ignored as risk aversion spreads

The euro strengthened over the dollar by 0.23 cents yesterday to close at 1.2741. Early in the session rising stocks in both Europe and the US fueled risk appetite and investors bought the euro. Later in the day however, new US Home Sales figures were announced and showed that there were 309,000 fewer sales in January than December, a fall of 10.2%. This reversed the performance of US stocks and the dollar pared it's gains as risk aversion returned. This was by no means the only major announcement yesterday though, the amount of Continuing Jobless Claims in the US rose to 5.112 million, Durable Goods Orders fell by 5.2% in January and 667,000 new Americans registered for unemployment benefits. However on all this negative news, the dollar failed to be weakened significantly which shows that exchange rates are not been derived off fundamentals.

In today's trading the dollar has strengthened back over the euro ahead of the announcement of Consumer Price Index data and Unemployment Rate data in the eurozone. In the US, GDP Annualized and Real Personal Consumption Expenditure are both announced as well as the Chicago Purchasing Managers' Index and the Reuters/Michigan Consumer Sentiment Index.

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Morning exchange rates

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Pound weakens against euro on investor concerns

The pound continued its slide against the single currency yesterday as data showed the UK economy shrank an unrevised 1.5 percent in the last quarter of 2008, confirming the deep recession we are currently facing. Losses then steepened after the head of sovereign ratings at Standard & Poor's said he expected more downgrades than upgrades this year, removing the risk appetite in the market that had been apparent at the start of the week. Bank of England policymaker Kate Barker later said that British economic growth may not restart until the end of 2009.

Trading has been quiet so far this morning, following the release of Nationwide’s housing survey revealing a further 1.8% decline in house prices this month, bringing the annual rate of change to -17.6%. In the eurozone this morning consumer, economic and industrial confidence data is released, whilst there are no further economic announcements due in the UK today.

GBPEUR: 1 week chart. Click on graph to enlarge.

Cable falls as economic outlook remains poor

Sterling fell sharply against the US dollar yesterday, losing more than 3 cents following GDP data which confirmed the UK economy shrank by an unrevised 1.5 percent in the last quarter of 2008, confirming Britain is in the midst of a deep recession. The dollar also gained support as investors sought its safe haven appeal following falls on Wall Street and more gloomy economic data. Data revealed US existing homes sales are at their lowest levels in almost 12 years, sparking fresh jitters about the economy and sending equities sharply lower.

The US dollar was also helped by the falling yen, amid growing concern about the Japanese recession. Usually the yen would be used as a safe haven currency during times of market volatility, but the current problems facing the Japanese economy have encouraged investors to move from the yen to the greenback.

There are no significant economic releases due from the UK today, while home sales, durable goods orders and jobless claims figures are released in the States this afternoon. President Obama will also be presenting his budget to Congress later today.

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Risk aversion sees dollar stregthen over euro

The dollar strengthened over the euro by 1.23 cents yesterday to close at the 1.2720 level, as risk aversion spread amongst investors and the dollar was heavily bought as a safe haven. An address by President Obama late on Tuesday did little to reveal how his administration planned to stabilise the economy. Figures released also showed that existing home sales fell by 5.3% in the US in January, which led to a fall in the price of stocks and promoted risk aversion. The euro's position was also undermined by news that Germany's economy contracted by 2.1% in the fourth quarter of 2008.

In today's trading the euro has come back as risk aversion abated after US stocks pared their losses in yesterday afternoon's trading. Also, German consumer confidence, as measured by Gfk, was shown to have improved this morning, and the rate at which German unemployment is increasing also slowed. Later today Consumer, Economic and Industrial Confidence data is released in the eurozone, whilst in the US, Durable Goods Orders, Initial Jobless Claims and New Home Sales figures are announced. Also taking place in the US today is the release of Barack Obama's budget report, which will give investors a clear indication about the future spending plans of his administration.

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Morning exchange rates

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Midday exchange rates

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Bleak economic outlook undermines sterling

Sterling reversed much of Monday’s gains yesterday, as investors remain wary about the bleak economic outlook facing the UK and about the likelihood of the Bank of England using quantitative easing to rejuvenate the economy. Bank of England policymaker, Andrew Sentance, confirmed that quantitative easing was necessary in the UK to get the economy back on track. These comments came alongside another bleak housing report from the British Bankers Association, which showed that mortgage approvals are down 43% in January compared to the same month last year. Figures released by the Office of National Statistics also showed that business investments fell at the fastest annual rate since 1991 in the fourth quarter of last year.

In early trading today, sterling is up against the single currency on improved stock market sentiment, following comments on both sides of the Atlantic that US and British banks will not be fully nationalised going forward.

Germany has released its GDP data as expected this morning, revealing a 2.1% decline in their GDP in the fourth quarter of 2008. Later this morning, the UK releases GDP figures.

GBPEUR: 1 week chart. Click on graph to enlarge.

Cable remains firm around 1.45

Sterling weakened against the dollar yesterday on the back of grim US data, with figures showing US consumer confidence dropped to another record low in February, while a survey showed US home prices falling at a record pace in December. The pound was also weighed down by further bleak housing figures from the British Bankers Association, and renewed speculation about quantitative easing in the UK.

However, the pound strengthened against the dollar yesterday evening and overnight, as risk appetite got a boost in the New York session from Bernanke’s comments that major US banks may not need to be nationalised. Bernanke also suggested that if the stimulus plan is successful it could begin to pull the US economy out of the recession by the end this year, although he cautioned that policymakers expect a full recovery to take two to three years.

In the UK today Gross Domestic Product figures will be released at 09.30 GMT. In the US, Existing Home Sales data will be announced at 15.00 GMT this afternoon.

GBPUSD: 1 week chart. Click on graph to enlarge.

Dollar down on improved risk appetite

The euro strengthened against the US dollar yesterday amid renewed risk appetite, as US stocks made their strongest gains in a month after Federal Reserve Chairman Ben Bernanke said that troubled US banks may not have to be nationalised. Bernanke did warn that the success of the $787 billion stimulus package would be essential to ending a downward economic spiral, but suggested that if the stimulus plan is successful it could begin to pull the US economy out of a severe recession by the end this year.

German GDP figures released this morning showed the German economy shrank by 2.1% in the fourth quarter of 2008, its largest contraction since the country was reunited in 1990. The fall marked the third quarter of economic decline in a row and suggested that Germany was in the midst of its worst recession since the Second World War. However, the data has had little impact on the euro this morning, as it confirmed figures released earlier in February.

There are no further major releases due from the eurozone today. In the US MBA Mortgage Applications and Home Sales data will be released this afternoon. Bernanke will also be giving a Monetary Policy Report to the US House Panel at 15.00 GMT today.

EURUSD: 1 week chart. Click on graph to enlarge.

Aussie dollar pares losses

The Australian dollar recovered most of its previous day’s losses against sterling yesterday, after comments from Fed Chairman, Ben Bernanke, that banks were likely to remain healthy without being nationalised caused a surge on Wall Street. This helped stem extreme risk aversion, although associated comments from Bernanke kept investor sentiment fragile. In the UK economic data was mixed, with CBI figures showing retail sales had fallen at a much slower pace than expected, while other data revealed investment had fallen at its fastest pace since the early 1990's and mortgage approvals were down over 40 percent on a year ago. Investors are today likely to focus on preliminary growth data for the UK. Markets are expecting the figures to reveal that the British economy has shrunk at a faster pace than had initially been forecast.

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Kiwi dollar firms on improved equities

The New Zealand dollar gained some support yesterday, as a rebound in equity markets eased investor risk aversion. This has continued into today's trading and until January trade data and the NBNZ business outlook survey are announced tomorrow, the kiwi will continue to be directed by broader market movements.

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Morning exchange rates

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Dollar strengthens over yen, weakens against euro

The Federal Reserve Chairman Ben Bernanke warned the Senate Banking Committee today that unless government efforts succeeded in restoring financial stability, the US recession may not end this year. Furthermore, US figures showed that consumer confidence fell to a record low in February and houses prices fell at a record pace in December.

These announcements had the effect of spreading risk aversion and encouraging investors to sell the Japanese yen and buy the US dollar. Demand for the greenback as a safe haven saw it hit a 3 month high over yen. The yen was also undermined as investors remain worried about its struggling economy and the lack of a convincing plan to aid it. As such it's safe haven status continues to be eroded.

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Against the euro this poor news actually saw the dollar weaken despite news from the eurozone that industrial new orders (the value of new contracts for goods in the manufacturing sector) fell by 22.3% in the last year.

EURUSD: Today's trading. Click on graph to enlarge.

Close of business exchange rates

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Sterling weakens on poor data and risk aversion

Sterling has traded lower against a whole basket of currencies today after risk aversion saw investors sell the risky pound and seek safer positions. In the US, Fed Chairman Ben Bernanke warned that unless government efforts succeeded in restoring financial stability, the US recession may not end this year. Furthermore, US figures showed that consumer confidence fell to a record low in February and houses prices fell at a record pace in December.

Poor British data has further undermined sterling's position as British business investment fell at it's steepest rate since 1991 (-7.7% for 2008) and the British Bankers' Association reported that mortgage approvals fell 43% in the year to January.

Tomorrow Caxton will post on quantitative easing, a tool it seems ever more likely the Bank of England will utilise to stimulate the economy and combat deflation.

GBPEUR: Today's trading. Click on the graph to enlarge.

GBPUSD: Today's trading. Click on the graph to enlarge.

Midday exchange rates

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Pound struggles to hold ground against euro

The pound enjoyed a successful day against the euro yesterday, following a rallying FTSE 100 early in the morning. This created demand for higher risk currencies, with sterling being the main beneficiary. In addition, the single currency was hurt after the President of the European Central Bank, Jean-Claude Trichet, highlighted the strains the financial system is facing in the eurozone and the spillover affect this is having on the economy.

The market will take particular note in the IFO’s business climate and expectations survey released in Germany this morning, and mortgage approvals and business investment figures in the UK. However the pound has already given up some of yesterday's gains.

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Pound continues to perform well against dollar

The pound continued to strengthen against the US dollar overnight, as riskier currencies benefited from stronger equity markets amid tentative optimism about the US government's plan to take stakes in struggling financial institutions.

However, the pound’s momentum has begun to peter out this morning, as investor optimism is starting to wane on renewed concern about the deteriorating economic climate in Europe and Japan.

The Confederation of British Industry's distributive trades survey is due at 11.00 GMT today, while the house price index and consumer confidence figures are released in the US this afternoon.

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Dollar struggles to post gains on talk of European banking woes

The US dollar strengthened over the euro by 1.27 cents yesterday to close the day at 1.2690. However, early in the day's trading the euro had shown good strength and reached a high of 1.2990 off news that the US government may take up to a 40% stake in Citigroup. Analysts took this as a suggestion that the US government would not allow another bank to fail and consequently improved risk appetite amongst investors saw demand for the dollar as a safe haven fall. However, in later trading comments from ECB President Trichet about the severe pressure that European banks now find themselves under saw the euro heavily sold. This was compounded by news that ratings agency Fitch was concerned about Austria's AAA credit rating.

In today's trading the euro has strengthened back against the dollar despite the announcement of slightly worse than expected German IFO Business Climate and Expectations data, which are business sentiment indices. Later today eurozone Industrial New Orders figures are released, whilst in the US the Richmond Fed Manufacturing Index, ABC/Washington Post Consumer Confidence survey and S&P/Case-Shiller Home Price Index are all announced as well as a speech from Fed Chairman Ben Bernanke.

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Sterling performs modestly against Aussie dollar

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 fuelled growing uncertainty over some of the world’s largest banks, and coupled with an already grim economic outlook kept investor risk aversion high. 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.

In this morning's trading the Aussie dollar has in fact strengthened back over a weakening pound.

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Kiwi dollar remains under pressure

The New Zealand dollar generally remained weaker yesterday after initial optimism was reversed later in the day. With little domestic data released the kiwi was largely directed by the movements of equity markets, which are being used as a barometer of risk aversion.

However in today's trading the pound has come under pressure and the kiwi dollar has come back somewhat.

GBPNZD: 1 week chart. Please click on graph to enlarge.

Morning exchange rates

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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.

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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.

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.

Pound trades mixed against the euro

Sterling initially struggled yesterday following an unsourced report in The Daily Telegraph of the risks to Britain's AAA credit rating, but the pound still finished the day higher against the euro. Investors quickly realised that the report referred to comments made by Standard and Poor’s last month, with no additional news being reported yesterday.

The market switched their attention to the Bank of England minutes, with no major surprises coming there. The Monetary Policy Committee voted 8-1 to cut rates earlier this month, with a unanimous decision to ask the Treasury for the powers to boost money supply – it is now expected that the Bank of England will embark on the path of quantitative easing as of next month. However it was the single currency that was under pressure in the afternoon, with concerns mounting that the region’s banks will report increasing losses, especially considering the economic plight in eastern Europe at present and the affect this may have on parent companies based in western Europe.

There are no major announcements due in the eurozone today, whilst money supply data is released in the UK this morning.

Pound weakens against the dollar following dovish BoE minutes

Sterling fell to a two-week low versus the dollar yesterday after dovish minutes from the Bank of England showed a unanimous vote to begin unconventional monetary easing measures. The Bank of England cut interest rates to 1% last month, however the minutes have suggested that a further interest rate cut will take place.

In the US, minutes from the Fed’s last meeting showed central bankers are growing increasingly concerned about a deepening recession. The FOMC now predicts that the US economy may contract by 0.5%- 1.3% this year, much worse than previous forecasts made in October.

Official figures released showed that US housing starts and building permits plummeted to record lows last month. Meanwhile, the number of permits issued for new buildings also fell to an all-time low, down 4.8% to 521,000 units. The data was announced on the same day as news that President Barack Obama’s plans to deal with the housing crisis and reduce foreclosures will help as many as 9m borrowers. Obama unveiled the $75bn plan in Mesa, Arizona, a suburb of Phoenix yesterday.

Dollar strengthens against the euro on Obama mortgage relief plan

The euro briefly fell to its lowest level since late November against the US dollar yesterday, as the dollar strengthened against most major currencies following President Obama’s announcement of a $75 billion mortgage relief plan, which would provide incentives to mortgage lenders to help borrowers reduce their payments.

The Federal Reserve said it expects unemployment to rise to between 8.5 percent and 8.8 percent this year, up from the 7.6 percent it forecast last year. The Fed also sees the economy shrinking by between 0.5 percent and 1.3 percent, instead of its prior outlook for 0.2 percent contraction to 1.1 percent growth. This latest outlook update, if true for 2009, would mark the weakest year of economic activity since 1982.

There are no significant announcements due from the eurozone today, while in the US Leading Indicators, Producer Price Index, Philadelphia Fed and Jobless Claims data are released this afternoon.

Kiwi dollar remains in precarious position

The New Zealand dollar remained relatively steady yesterday, but continued to remain in a precarious position as fears of a deepening recession and falling stock markets increased risk aversion. The kiwi is likely to continue to be directed by equity markets for the rest of this week.

Aussie dollar recovers from weekly lows

The Australian dollar recovered from weekly lows against sterling yesterday, after the Bank of England minutes revealed that quantitative easing was probably imminent. The minutes revealed that the policy makers were unanimous in their decision to seek government consent for quantitative easing by buying gilts and other securities. It remains unclear whether the BoE will cut rates again when they next meet in March, but it is clear that going forward alternative methods will become the main tools for monetary easing. Meanwhile other data revealed British factory orders fell at their fastest rate since 1992, adding further misery to the already deteriorating economy. The aussie may be limited in its gains as weak economic data across the globe, and continuing concerns over the financial sector, keep investors wary of taking on too much risk.

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.

Polish zloty nears all time low against the euro

The Polish zloty neared an all time low against the euro today over fears of souring currency options at Polish firms and rising concern about Eastern Europe's reliance on foreign debt.

Moody's rating agency said the accelerating recession in Eastern Europe will be more severe than elsewhere due to large imbalances, and it could threaten the ratings of local banks and their western parents. Banks from Austria, Italy, France, Belgium, Germany and Sweden account for 84 percent of all bank loans in Central and Eastern Europe.

Sentiment on the zloty has also been undermined by a Polish central bank report casting doubt on Warsaw's plans to adopt the euro in 2012 – since the report was published on Friday the zloty has fallen more than 8% to 4.9307 per euro, near the all-time low of 4.9453 reached in March 2004.

Dollar rises against the pound amid thin trading

Trading was thin on the ground yesterday as US markets were closed for President’s Day. The dollar rose against the pound on the back of risk aversion which caused investors to flock to the safe haven of the dollar. Additionally Japan announced on Monday that growth had fallen by more than 3% in the last three months of 2008, the worst result in 35 years. The pound remained weak predominantly due to the fact that the G7 meeting failed to refer to it at the weekend. It is also expected that sterling will weaken further today in anticipation of a report due out which is expected to show a slowdown in inflation in the current bleak economic situation.

There are several significant announcements taking place in the US today including the NY Empire State Manufacturing Index, TIC Flows and the NAHB Housing Market Index. In the UK, Consumer Price Index, House Price Index and Retail Price Index data will be released at 09.30 GMT.

Pound remains under pressure against the euro

In a quiet day for trading, the pound remained pressurised against the single currency as concerns over Lloyds Banking Group heightened banking sector worries and after the Group of Seven finance ministers made no comment on the currency. Indeed, rating’s agency Moody’s downgraded Lloyds senior debt to A1 from Aa1 and the group’s financial strength rating form B+ to C+, confirming the major concerns surrounding the bank at present. News out of the eurozone was little better as it was revealed that the European Commission will launch disciplinary steps against France, Spain and Greece for exceeding the EU’s budget deficit limit of 3% of GDP.

The major news this morning will surround the UK’s inflation figures and ZEW releasing their economic sentiment survey within Germany.

Euro falls to 2-month low against the dollar

The dollar rose across the board yesterday, pushing the euro to a two month low amid concerns about a recession in eastern Europe and the knock-on effect on European banks. Credit rating agency Moody's said the recession in Eastern Europe was likely to be more severe than elsewhere and would put credit ratings of local banks and their Western parents under pressure, fuelling investor jitters about the region. The report stoked euro selling which, along with investor risk aversion, helped propel the dollar higher against the euro, the yen and the pound.

The German ZEW Economic Sentiment survey is released this morning and Trade balance figures are also due from the eurozone. In the US Total Net TIC Flows, ABC Consumer Confidence and Empire Manufacturing data are released this afternoon.

Australian dollar weakens slightly against the pound

The Australian dollar weakened slightly against sterling yesterday, in subdued trade due to a US holiday. The aussie remained weighed down by risk aversion after the weekend G7 meeting and concerns over Japan heading into recession. Today investors will eye key UK inflation data for further direction. Analysts expect the January figure to fall from 3.1 percent to 2.7 percent.

New Zealand dollar remains on the back foot

The New Zealand dollar remained on the back foot overnight as fresh gloomy economic data around the world continued to keep investors cautious about taking on any further risk. Data also revealed a sharp fall in producer prices, and activity in the New Zealand services sector fell to a record low in January. Falling inflation means the likelihood of further substantial rate cuts remains a real possibility.

Pound surrenders gains over euro

The pound weakened against the euro this morning following an announcement by the CBI that gross domestic product will fall by 3.3% - the most in almost 30 years. The Group of Seven finance chiefs meeting in Rome on the weekend did not refer to the weakening pound, which is down 17 percent versus the euro in the past 12 months. Investors are speculating that this omission may therefore weaken the pound. The pound has been static so far this morning.

There are no significant announcements taking place in the UK or Eurozone today and after some good strength over the weekend, the pound has fallen back to around Friday's close.

Dollar remains strong over sterling

The dollar weakened against the pound on Friday following an announcement by the House of Representatives to pass the £548 billion stimulus plan. The pound was supported by expectations that the G7 statement may outline plans to bolster the UK currency following its recent weakness. However the Group of Seven finance chiefs did not refer to the weakening pound, as investors speculate that this omission may ultimately weaken sterling further.

There are no significant announcements taking place in the US or UK today but with continued poor sentiment, the pound has weakend further.

US dollar continues to perform well over euro

The euro strengthened over the US dollar by 0.02 cents on Friday but closed the week 1.05 cents down at the 1.2862 level. Investor's attentions had been focused toward comment from the G7 meeting of finance ministers in Rome, however a draft statement released late in the US session made no reference to specific currencies other than the Chinese yaun. Eurozone GDP figures released earlier in the day showed that the eurozone economy contracted by 1.5% in the fourth quarter of 2008 and 1.2% in the year. In the US the Reuters/Michigan Consumer Sentiment index fell.

In today's trading the dollar has strengthened over the euro reaching as low as 1.2729, as worries about the health of European banks has promoted risk aversion and lead investors to buy the greenback for it's relative safety. There are no major announcements due out in either the US or eurozone today..

Aussie dollar falls against pound

The Australian dollar retracted against sterling in overseas sessions as rising risk aversion kept the dollar under pressure. High yielding currencies were affected as finance ministers from the Group of Seven countries offered nothing new on currencies at a meeting over the weekend in Italy. The pound was limited in its gains by sharp falls in the UK banking stocks after Lloyds Banking Group unveiled a hefty loss in relation to its HBOS subsidiary. However with good strength over the weekend, the pound is up this morning from Friday's close against the Aussie dollar.

Mixed performance for Kiwi dollar against pound

The New Zealand dollar has regained its losses against the pound after Friday’s weak retail sales data. The December quarter fall was the fifth consecutive quarter in a row, pointing to ongoing consumer weakness despite personal tax cuts and falling petrol prices. However gains posted over the weekend have started to be eroded as the pound gathers some strength.

Pound under pressure against the euro again

The pound endured another difficult day yesterday as the market anticipated looser monetary policy in the UK, after the Bank of England said it was ready to take unconventional easing measures to revive the ailing economy. Risk aversion also kept sterling under pressure as equity markets around the world were sluggish following the disappointment over the vague nature of the US bailout.

In early trading today the pound is regaining some value as the FTSE 100 is up. Investors are also wary about opening up new short positions ahead of the G7 meeting starting today and the long weekend in the US.

Investors will be particularly interested in the eurozone’s GDP figures released this morning. Germany announced their GDP early this morning, which came in worse than expected at -2.1% (expected -1.8%). There are no major announcements due in the UK today.

Dollar strengthens against sterling

The dollar strengthened against the pound yesterday due to worries over the bleak global economic outlook, which resulted in a decrease in investors’ appetite for riskier currencies. There was mixed data released in the US yesterday, with the announcement that US retail sales were up by 1% in January while Labor Department data revealed the number of unemployment benefit claimants rose for the fourth week in a row, up to 4.81m in the week to 31 January from 4.8m the week before.

Investors are now waiting to find out the outcome of the US $789 billion stimulus plan, which is expected to be put to a vote in both the House and the Senate today. The pound remained weak against most of the major currencies following the Bank of England’s announcement that they may make use of quantitative easing in order to revive the economy.

There are no significant announcements taking place in the US or UK today.

Dollar strengthens over the euro

In Thursday's trading the dollar strengthened over the euro by 0.43 cents to close the day at 1.2859. Earlier in the session the euro did fall as low as 1.2725 when stocks fell and risk aversion saw the euro sold heavily as investors sought the safety of the dollar. However, it did manage to trim its losses by the close as American stocks rebounded and better than expected US retail sales data saw risk appetite return to the currency markets.

In today's trading the euro has continued to strengthen, reaching as high as 1.2940 on renewed risk appetite and therefore increased demand for the single currency. This is ahead of the announcement of eurozone GDP figures; Germany's have already been released and show that the eurozone's largest economy contracted 2.1% in the 4th quarter of 2008 and 1.7% during the year. In America the Reuters/Michigan Consumer Sentiment Index is announced this afternoon.

Aussie dollar trades mixed against sterling

The Australian dollar traded mixed against sterling yesterday, as rising risk aversion kept the dollar under pressure amid disappointment at the lack of details about the US bailout. Sterling remained limited after the Bank of England said it was ready to take unconventional monetary easing measures to revive the ailing economy. BoE Governor Mervyn King said the central bank would discuss the measure at its next rate-setting meeting in early March.

Kiwi dollars firms slightly against the pound

The New Zealand dollar firmed slightly in calmer trade yesterday, as investors awaited key local data and news on whether US lawmakers would finally pass a multi-billion dollar stimulus package. In local news overnight, New Zealand retail sales fell by 1%, although this did little to dent the kiwi dollar.

Pound falls against the euro

The pound slumped against the single currency yesterday, after the Bank of England said it was ready to ease monetary policy further and was willing to take unconventional measures to revive the ailing economy – quantitative easing here we come. Mervyn King stated that once approval has been given, the Bank of England would create cash to buy government and corporate bonds in a bid to boost the wider economy and ease credit conditions. It was also stated that the bank is anticipating the economy will contract all year, hitting a low of minus 4% in the second quarter.

News out of the eurozone was little better as the Spanish government admitted that it may be forced to bailout some of the country’s banks – something they have refused to do up until now.

Investors will take note of the European Central Bank’s monthly report due this morning, along with industrial production figures. There are no major announcements due in the UK today.

Pound weaker against the dollar

The dollar began to strengthen against most major currencies yesterday due to uncertainty arising over the US government’s bailout plan. Additionally, the UK released a report showing that unemployment had hit a 10 year high. However, the dollar later reduced gains against the pound after Congress reached a deal on the stimulus package.

The Bank of England released a report predicting that inflation would be 0.5% in 2 years and stated that further easing in monetary policy might be needed in the near future.

There are several significant announcements taking place in the US today, including MBA Mortgage Applications, Jobless Claims and Retail Sales.

Dollar little changed against the euro

The US dollar finished little changed against the euro yesterday, amid signs the US Senate and House of Representatives will be able to bridge their differences over the economic stimulus plan. Congress and the Obama administration reached a deal on Wednesday on a $789 billion package that would mix tax cuts and new government spending in an effort to rescue the faltering US economy. Votes on the final stimulus bill could come as early as Thursday.

Wall Street stocks rose on the news late in the New York session amid rising risk appetite, reducing some demand for the dollar as a safe-haven currency. Prior to the announcement, the dollar had been trading higher as investors had sought its safety amid market volatility.

In the US today Retail Sales and jobless claims data are due this afternoon, while industrial production figures are released in the eurozone this morning.

Speculation about quantitative easing undermines the pound against the aussie

The Australian dollar gained back most of its recent days losses against sterling yesterday, after BoE Governor Mervyn King stated that the central bank was ready to ease interest rates further as well as being willing to take unconventional measures to help revive the British economy. He also mentioned the bank would discuss 'quantitative easing', which is essentially buying assets to boost the money supply. Earlier the bank inflation report showed inflation forecasts had been revised down sharply. Despite the likelihood of further rate cuts the BoE now has very little to play with in terms of reducing rates, which has had the market speculating that the use of non-conventional methods is now much more likely. Quantitative easing is likely to help resolve some of the key issues in the market, however it is likely to have a strong negative impact on the pound.

Kiwi dollar supported by rising equity markets

The New Zealand dollar strengthened against sterling yesterday, as gains in equity markets saw a greater demand for high yielding currencies. With little out domestically the kiwi’s direction has been largely driven by equity markets, which are used as a barometer for risk. The announcement of a consensus over the US stimulus package has generated cautious optimism from most markets.

Euro weakens against the dollar as equity markets fall

The euro finished down against the dollar yesterday, losing 0.94 cents on the day as concerns about the US stimulus package caused stock markets to plummet, which in turn undermined the euro and supported the dollar. A "stress test" for the largest US financial institutions included in the plan sparked a slump in the banking sector, as investors worried about which banks are strong enough financially to make the grade.

All banks with more than $100 billion in assets will be required to submit to the stress test. That level encompasses such institutions as J.P. Morgan Chase, Citigroup, Bank of America and Wells Fargo; shares of those banks dropped by between 10% and 19% following the announcement. Some other banks that will likely face the test fell even more steeply - shares of SunTrust Banks, which has more than $150 billion in assets, slumped 27%, while Regions Financial with more than $140 billion, lost 30.

The euro has recovered a little lost ground this morning following the release of German CPI data, which showed annual inflation had slowed to 0.9% in January from 1.1% in December, as expected. However, the euro is still trading below the $1.30 level as risk aversion continues to support the dollar.

Dollar strengthens against the pound

The dollar strengthened against the pound yesterday in anticipation of Senate approval of the US bailout plan. Traders gave a tepid response to the Senate finally approving the delayed stimulus bill, as concerns arose that the bill would not be sufficient to revive the US economy. The dollar strengthened rapidly against the pound as risk aversion returned.

Data released in the UK was mixed as a BRC report showed fairly positive retail sales whilst a housing report showed falling home sales.

There are several significant announcements taking place in the US today including Trade Balance at 13.30 GMT. In the UK, the ILO Uenemployment Rate at 09.30 GMT will be of particular significance.

Sterling reverses gains against the euro

The pound reversed many of the gains seen over the past week against the euro yesterday, as markets snubbed the new US bailout plan. Global equity markets fell after the plan was announced, over fears that the rescue plan is too vague and may not go far enough to rejuvenate the world’s largest economy. Investors favoured safe haven currencies such as the dollar and the yen, and dumped the relatively higher risk pound as risk aversion took hold. Indeed, sterling could not be saved by better than expected trade balance figures released in the morning, which showed that the UK’s trade gap narrowed to levels not seen since June 2007.

There are no major announcements due in the eurozone today, whilst investors will take a keen look at the Bank of England’s quarterly inflation report and unemployment figures released this morning.

Australian dollar slightly weaker against sterling

The Australian dollar was slightly weaker against the pound yesterday, after investors were uninspired by the announcement of the US bank rescue package. This caused a downturn in stock markets, triggering an upturn in risk aversion. Economic data was mixed out of the UK as the pace of falls in house prices quickened, while retail figures were better than expected and Britain's trade deficit narrowed. Later today investors will focus on key UK unemployment data and the BoE quarterly inflation report. The bank report on inflation may give further clues as to the size and timing of future rate cuts. Markets are expecting inflation levels to undershoot the target levels, paving the way for further rate cuts.

Kiwi dollar may remain vulnerable

The New Zealand dollar remained in relatively narrow ranges yesterday as investors digest the US bank rescue package. The kiwi may remain vulnerable as many in the market are of the view that the rescue plan is only a band aid solution and will not help solve the banking crisis. Continuing concerns over global financial markets is likely to see investors remain relatively risk averse. Until retail sales figures are released on Friday the kiwi’s direction will continue to be driven by broader market movements.

Pound continues to strengthen against the euro

The pound continued its recent upward trend against the single currency yesterday as investors were reassured by better than expected earnings at Barclays bank. Shares in the bank rose by more than 10% in response to the news, as there was a realisation that the bank did relatively well considering the economic turbulence of 2008. Indeed, sterling’s gains came despite Labour’s school secretary Ed Balls warning that the world is facing up to its worst recession in more than a century.

The Royal Institute of Chartered Surveyors reported overnight that interest in the housing market continued to pick up in January, although the average number of transactions showed little change, as the housing market remains sluggish in tight credit conditions. The UK releases its trade balance data this morning, whilst there are no major announcements due in the eurozone.

Sterling makes gains against the dollar

The pound started the week well against the US dollar, strengthening by 0.83 cents to close that day at 1.4895. The pound’s strength came from the announcement of better than expected earnings from Barclays bank who posted pre-tax profits of £6.1 billion for 2008. Improved investor sentiment was also coupled with lingering concerns for the US economy after Friday's poor unemployment data in the US, and investors remained cautious over Obama's fiscal stimulus package.

In today's trading the dollar has strengthened back over the pound, reaching as low as 1.4775 ahead of the announcement by Treasury Secretary Timothy Geithner about the details of a new bailout plan. This will take place at 16.00 GMT, before the announcement of ABC/Washington Post Consumer Confidence figures at 22.00 GMT.

Euro strengthens against the US dollar

The euro strengthened over the US dollar by 0.35 cents on Monday to close at the 1.3002 as uncertainty over the announcement of details for a fiscal stimulus package and further bank bailout surfaced. At 16.00 GMT today there will be an announcement by Treasury Secretary Timothy Geithner about the details of the new bailout plan, and the market will remain cautious until the particulars are confirmed. Investors speculate that the new plan will move away from the idea of having a stand alone, government backed 'bad bank' and instead propose a public-private partnership that could buy up to $500 billion worth of distressed assets.

In today's trading the euro has fallen significantly against the dollar, reaching as low as 1.2812 as news that Russian banks have asked their government to try and renegotiate the repayment of up to $400 billion worth of debt to foreign banks. This hurt the euro as Russian banks have very close ties with their European neighbors who may be significantly exposed to these debts. Later today ABC/Washington Post Consumer Confidence figures are announced in the US as well as details of the new bank bail out plan. There are no major economic announcements in the eurozone today.

New Zealand dollar remains solid

The New Zealand dollar remained solid yesterday as investor risk aversion improved on the back of hopes for a quick passing of the US stimulus package and further plans to help the banking sector. Retail sales are due later this week, however until then the kiwi’s direction will be driven by broader market movements.

Australian dollar remains range-bound

The Australian dollar remained largely in recent ranges in choppy trade yesterday, as Britain's share market gained for a fifth straight day. The gains were led by banks after Barclays beat profit expectations. Investors will eye key UK trade data today which will give a better picture of how its export market is faring. The EU is Britain's largest market and the rapid downturn there is unlikely to bode well for UK exports. Markets will also focus on the US government’s release of its banking rescue plan. Given that the UK relies heavily on its financial sector this will be of particular importance.

Pound continues to gain ground over the euro

The pound edged up further against the euro on Friday, signaling two consecutive weeks of gains against the single currency. Investors have continued to react positively to the Bank of England’s decision on Thursday to cut their target interest rate to 1% - a new historic low. There is a belief that the Bank of England has been proactive in the past few months in attempting to rejuvenate the economy, whereas the European Central Bank may be slightly behind the curve. Interest rates were kept on hold at 2% in the eurozone, with many anticipating that these may have to fall much further to get their economies moving again.

There are no major economic announcements due in the UK today, whilst within the EU, Sentix release their investor confidence survey.

Pound strengthens against the US dollar

The pound strengthened against the dollar on Friday as the US announced the worst job losses data in 35 years. It is expected that this will renew the urgency for the US $900 billion stimulus package currently being considered by Congress. The pound also strengthened on the back of the Bank of England’s 50 basis points interest rate cut on Thursday. Analysts said while the US jobs data was bleak, the data was largely expected and focus quickly turned to how the data will help the stimulus plan get passed.

There are no significant announcements taking place in the US today.

Euro strengthens against the US dollar

The euro posted gains of 1.47 cents over the dollar on Friday to close the week up 1.91 cents at the 1.2938 level. The dollar was undermined on Friday after official US data showed that employers slashed 598,000 jobs in January, the steepest fall in 34 years. US unemployment now stands at 7.6% and many investors are hoping that Obama's fiscal stimulus package will be passed by Congress. However, the euro's gains were pared after figures showed that German industrial production had fallen by 4.6% in December.

In today's trading the dollar has strengthened back over the euro reaching as low as 1.2878 after it was confirmed that details of the proposed fiscal stimulus plan would be announced by the Treasury Secretary at 16.00 GMT tomorrow. It is anticipated that currencies would likely take their cue from how stock markets react to the plan. In today's trading there are no major economic announcements in the US, whilst in the eurozone it has been announced that the German trade balance surplus fell by €3.1 billion in December, to €6.9 billion.

Kiwi dollar strengthens against the pound

The New Zealand dollar gained over the weekend as gains in stock markets saw an improvement in appetite for riskier assets. Equity markets are still being used as the barometer for risk aversion, and optimism over a potential US stimulus package led to gains across most regional markets. The local market was closed on Friday due to a public holiday. Little domestic data is due until later in the week so the kiwi's direction is likely to follow broader market movements over the next couple of days.

Australian dollar strengthens against the pound

The Australian dollar made sharp gains against sterling late on Friday, after renewed optimism over a US stimulus package saw improved appetite for higher yielding currencies. Despite poor US jobs numbers, investors speculated that this could spur US lawmakers into deciding on the stimulus package more quickly. Wall Street rose on the back of this, dragging other major stock markets with it. Markets largely shrugged off further dismal economic data which showed sharp declines in both British manufacturing output and industrial production. This may indicate that markets are now satisfied that they have already priced in most of the bad news for the pound. Investors will today eye more forecasts for British growth; further readjustments downwards are likely.

Pound strengthens against euro

In response to the Bank of England’s decision to cut interest rates by 0.5% to a new historic low of 1% yesterday, the pound has regained value against the single currency as markets reacted positively to the move. The European Central Bank also acted as expected and kept interest rates on hold at 2%. Housing numbers from the Halifax house price index also surprised to the upside earlier on Thursday, with a rise in prices of 1.9 percent in January, with many anticipating they would have fallen further. In early trading today the pound has risen further against the euro, hitting a 2 month high as investors hold on to the belief that the UK’s interest rates may be nearing the bottom, whereas the eurozone has much further to fall. It must be noted, however, that an underlying nervousness still remains over the state of the UK’s economy and how deep a recession we may be facing.

Germany release their industrial production figures this morning, whilst within the UK, industrial and manufacturing data is released.

Sterling strengthens against the US dollar

The pound strengthened against most of the major currencies yesterday following the Bank of England’s decision to cut interest rates by 50 basis points to 1%. Usually currency weakens on the back of interest rate cuts, however the opposite has occurred on this occasion as investors’ believe it points to a positive economic stimulus.

The pound reached a two-week high against the dollar, although experts believe this will be short lived with many predicting losses versus the greenback over the next few months. It hit a 23-year low just last month.

There are several significant announcements taking place in the US today including Nonfarm Payrolls, Average Hourly Earnings, Average Weekly Hours and Unemployment Rate at 13.30 GMT. In the UK, Industrial Production and Manufacturing Production data will be released at 09.30 GMT.

Dollar strengthens over the euro

The dollar strengthened over the euro by 0.59 cents yesterday to close the day at 1.2791, after rumors that the Securities and Exchange Commission is going to relax some accounting rules saw US stocks rally. This had the effect of improving risk appetite in the foreign exchange markets and saw the euro come off its earlier low of 1.2765, which it had been pushed to after lingering pressure from the downgrading of Russia's sovereign debt.

In today's trading there has been little change as investors wait for the announcement of a barrage of important US employment data. Announced at 13.30 GMT, Average Hourly Earnings, Non-farm Payrolls and Unemployment Rate figures will give a clear indication of the health of the US employment market and some investors speculate that we will notice a slowing in the rate of contraction. In the eurozone German Industrial Production data is announced this morning.

Australian dollar eases off slightly against sterling

The Australian dollar eased off slightly against sterling yesterday, as the BoE cut rates by 50 basis points, to a record low of 1 percent. The decision generally met market expectations but investors continue to remain nervous over the economy and the state of its financial system. Analysts are now pricing in a further rate cut from the BoE in March. However monetary easing, as a tool to stimulate the economy, will have less effect the closer rates head toward zero. Investors therefore continue to remain alert to possible alternative measures being used such as quantitative easing. This would involve flooding the banking system with money to keep official rates low and help shore up the financial systems.

New Zealand dollar remains range-bound

The New Zealand dollar remained largely range bound yesterday, gaining some support from jobs data. The jobless rate rose to 4.6 percent in the fourth quarter, however 21,000 jobs were added in the same period. The numbers backed a case for the central bank to cut rates by smaller increments rather than larger ones. The kiwi was also aided by an improvement in investor risk appetite.

ECB keeps rates on hold at 2%

In a scheduled announcement the European Central Bank has kept rates on hold at 2%. Analysts had been expecting this decision, as ECB President Jean-Claude Trichet had previously hinted that the next rate cut would not come until March.

Bank of England cuts rates by 0.5%

In a scheduled announcement the Bank of England has cut British interest rates by 0.5%, reducing the Bank's target rate from 1.5% to 1%. The decision was in line with investors' expectations, who were anticipating a cut of at least 0.5%. This rate cut sets a new all time low for the Bank of England.

Pound rallies against the euro

The pound rallied against the single currency yesterday due to a broad-based improvement in investors' appetite for perceived riskier assets on the back of stronger-than-expected service sector data across the globe. Indeed, PMI services data out of the UK rose to 42.5 in January from 40.2 the previous month, and higher than market forecasts of 40.4.

The euro's slide yesterday was accelerated after Fitch Ratings downgraded Russia's long-term foreign and local currency ratings to triple-B, sparking fears of a deep downturn in Eastern Europe. Capital outflows from Russia put pressure on the rouble, forcing Russian authorities to sell euros to maintain the balance of their euro-dollar currency basket.

The major news today will surround the interest rate decisions due from the Bank of England and European Central Bank. The market is anticipating a 0.5% cut from the BoE, whilst the ECB is expected to keep rates on hold at 2%. Any unexpected move from either central bank could lead to a weakening of the currencies.

Pound falling against the US dollar

The pound has lost ground to the US dollar this morning, as investors expect the Bank of England to cut interest rates to another record low this afternoon. Sterling has traded in a very volatile fashion this week, alternately undermined by Moody's downgrade of Barclays and buoyed by a slightly less bleak outcome than expected from a round of economic data, including British service sector numbers. Overall though, underlying nervousness at the vulnerable state of Britain's financial sector and broader economy has kept sentiment weak.

A 0.5% rate cut from the BoE has already been priced in, but some investors are speculating that the central bank may cut rates by a full percentage point to stave off a deepening recession.

US dollar strengthens against euro

The US dollar strengthened over the euro by 1.91 cents yesterday to close the day at 1.2847. A report on the health of the US manufacturing sector showed that activity had not fallen as much in January as expected, which gave the dollar some strength. Coupled with this was news that US private sector job losses had slowed slightly in January. The euro's position was also undermined by news of a downgrade in Russia's sovereign debt due to low commodity prices, dwindling reserves and corporate debt problems.

In today's trading the dollar has pushed slightly lower but the rate has steadied ahead of the ECB's interest rate announcement at 12.45 GMT this afternoon. Investors expect the central bank to keep interest rates on hold at 2% this month, with further cuts potentially made at a later date. Other announcements in the eurozone include German Factory Orders figures, whilst in the US Jobless Claims, Nonfarm Productivity and Factory Orders data is released.

New Zealand dollars weakens against the pound

The New Zealand dollar weakened against sterling yesterday, as initial optimism over proposed stimulus packages and upbeat US data was overshadowed by investor caution. Concerns over fragile financial markets and rapid deterioration in global growth continue to be the dominant factor in world markets.

Aussie dollar weakens as investors sell high yielding currencies

The Australian dollar weakened yesterday amid heavy selling of high yielding currencies as investors again turned cautious. The aussie was also weighed down by concerns that the government’s proposed stimulus package would not pass in time to meet its time table. The Federal opposition has opposed the bill and despite it passing the lower house it still needs to be passed by the senate. Sterling was also buoyed yesterday by data revealing that the deterioration in the UK service sector had slowed in January. Market focus will now shift to Europe, with the BoE and the ECB making rate decisions later today. Investors are unlikely to undertake heavy positioning ahead of this, as economists are forecasting the BoE could cut anywhere from 50 basis points to 100.

US dollar weakens against sterling

The dollar weakened yesterday as traders began investing in riskier higher yielding currencies following positive US housing data. There was limited trading in anticipation of the interest rate decisions from the Bank of England and the European Central Bank tomorrow. The ECB is likely to maintain interest rates at 2%, whilst the Bank of England is expected to cut further by up to 100 basis points. Usually a currency is weakened by interest rate cuts, but there is speculation that the pound may instead strengthen on the back of any cuts as the move points to a positive economic stimulus.

The pound also strengthened yesterday following a report on the UK construction sector, which showed that it rose to 34.5 in January from the 12 year low of 29.3 set in December.

There are several significant announcements taking place in the US today including ADP Employment Change and MBA Mortgage Applications. In the UK, the BRC Shop Price Index will be released at 10.00 GMT.

Pound remains under pressure against the euro

The pound remained under broad selling pressure against the single currency yesterday, as poor economic fundamentals and a looming interest rate cut took its toll on sterling. Data released early on Tuesday showed the construction industry rose to 34.5 in January after a fall to 29.3 in December. But that was the 11th month running the index has been below 50, the level which marks contraction, confirming the poor state of the UK’s economy at present. Investors are also wary of another interest rate cut tomorrow, with the Caxton FX analysts forecasting a 0.5% cut by the Bank of England to another historic low of 1%, whilst the European Central Bank are expected to keep rates on hold at 2%.

Retail sales figures are released in the eurozone this morning, whilst PMI services data is released in the UK and the eurozone.

US dollar loses ground to the euro

The US dollar slipped against the euro yesterday as investors sold the safe haven dollar on the back of a positive US housing report and action by the Federal Reserve aimed at underpinning liquidity amid the global financial crisis.

The National Association of Realtors struck an unexpected note of hope for the devastated US housing market, in a deepening slump since 2006. NAR reported pending home sales rose 6.3 percent in December, confounding most private economists' expectations of a flat reading. In addition, the Federal Reserve announced a six month extension of temporary programmes designed to inject liquidity into the financial markets.

Eurozone Retail Sales and PMI Services data is released this morning, while in the US employment data and MBA Mortgage Applications figures are released this afternoon.

New Zealand dollar rebounds

The New Zealand dollar rebounded against most of the majors yesterday after it was aided by an easing in global risk aversion. With no major local data out, the kiwi was directed by broader market movements. Markets are speculating that the NZ central bank still has more work too do, which is likely to keep the kiwi generally weaker in the short to medium term.

Aussie dollar makes gains against the pound

The Australian dollar clawed back further ground against sterling yesterday, after stock markets gained ground following renewed optimism in the US about a new stimulus plan. This gave some relief to investor risk aversion, which helped the aussie hold on to much of its previous gains. As expected, the Reserve Bank of Australia cut rates by 100 basis points. The market was also given a boost with the government announcing a A$42 billion stimulus package. However, while many took this as a positive some in the market argued that due to the global factors at play it would still not help the Australian economy from heading into recession.