Euro undermined against dollar as ECB rate cut looks likely

The dollar strengthened against the euro on Friday on the view that the ECB will cut interest rates and announce quantitative easing measures at their next meeting on 2 April. The euro also weakened on the back of comments by German finance minister Peer Steinbrueck about the strength of the euro if 'fiscal responsibility is not taken more seriously in Europe.'

A fall in eurozone industrial orders in January and a weak performance on Wall Street on Friday also resulted in investors flocking to the safe haven of the dollar. US GDP data was not as dire as anticipated - it fell by an annual rate of 6.3% in the final quarter of last year, but this was still better than consensus forecasts from economists of a 6.6% fall.

This morning the dollar continued to strengthen against the euro. There are several announcements taking place in the eurozone today including Consumer Confidence, Economic Confidence and Industrial Confidence due to be released at 09.00 GMT. Additionally the ECB’s Trichet will be making a speech at 14.30 GMT. There are no significant announcements taking place in the US today.

Aussie dollar comes off highs

The Australian dollar remained just off recent highs as stocks ended on a downward note late on Friday. After a recent strong run on equity markets investors remain cautious over any potential further gains. Much of this week’s direction is likely to be driven by the upcoming G20 meeting on Thursday. Both the Australian and British leaders are calling for a more coordinated approach to stimulating the world economy. However, it remains to be seen whether all the participating countries can agree on a workable consensus.

Kiwi dollar holds ground

The New Zealand dollar remained firmer over the weekend, as it was backed by better than expected GDP data on Friday. The figures showed a 0.9 percent contraction in the fourth quarter, but markets reacted positively as this beat forecasts of more than a 1 percent drop.

Midday rates update

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Pound falls against Aussie dollar

The Australian dollar strengthened further against sterling yesterday, after figures revealed UK retail sales in February fell 1.9 percent. This was almost five times greater than what was forecast and only added to the economic gloom. With rising unemployment, falling house prices and continuing tight credit conditions it seems unlikely that the retail sector will improve over the short to medium term. Rumours have also now surfaced of a possible rift between the government and the BoE. Mervyn King, the BoE Governor, commented this week that there was little room for extra economic stimulus going forward. Prime Minister Gordon Brown, however, seems to be championing the cause of a coordinated economic stimulus going into the next G20 meeting.

Pound falls lower against euro

The pound was sluggish against the single currency yesterday as softer than expected retail sales figures for February worried investors. The inclement weather and poor economic conditions kept consumers away from the high street, with the monthly fall of 1.9% taking the annual growth rate to 0.4% - the weakest since 1995. Sterling was also under pressure following Wednesday’s failed gilt auction, the first failed auction since 2002, although yesterday did bring some relief to the market as a sale of £1.1bn of index-linked gilts due 2022 was 2.72 times covered.

Barclays bank are also expected to receive some brighter news today as they have passed an FSA stress test, the same one that resulted in Lloyds Banking Group participating in the governments asset protection scheme. The news will boost Barclays as it strives to keep out of the hands of the government.

The eurozone releases their industrial new orders data this morning, whilst within the UK GDP figures for the fourth quarter of 2008 are revealed.

Poor retail sales sees cable push lower

Worse than expected retail sales data saw the pound weaken by 1.02 cents against the US dollar yesterday, closing the session at the 1.4451 level. Early gains were pared after it was shown that UK retail sales fell 1.9% in February and 0.4% in the year to February. This news out-weighed any gains that were to be made from the news that the rate at which total business investment was falling in the UK had eased, falling only 1.5% in Q4 2008. Improved risk appetite during the US session failed to buoy the pound when investors drew confidence from rallying stocks and commodities. In the US, gross domestic product figures confirmed that the American economy contracted by 6.3% in 2008 whilst jobless claims data showed that there were 624,000 new claimants on top of the 5,560,000 people who continue to receive support.

In today’s trading the pound has continued to slide ahead of the significant announcement of gross domestic product figures in the UK at 09.30 GMT. Also announced in the UK today are Nationwide house prices and current account data. In the US there is a barrage of major economic announcements this afternoon, which includes core personal consumption expenditure, personal income and personal spending figures, as well as the release of the Reuters/Michigan Consumer Sentiment Index.

Dollar posts gains on euro

The euro weakened slightly against the dollar yesterday following US Secretary Timothy Geithner’s comments that the dollar remains strong and will continue to be the global reserve currency. Geithner stated that he rejected the idea of a new global currency, a suggestion made recently by the head of China's central bank.

A German consumer sentiment survey fell slightly yesterday, the first drop since October. In the US, it was announced that Gross Domestic Product and Initial Jobless Claims data was better than anticipated, despite an increase in continuing jobless claims. Nevertheless trading remained fairly flat as investors are awaiting the eagerly anticipated ECB interest rate decision, due next Thursday, where the ECB are expected to announce a further interest rate cut.

There are several significant announcements taking place in the US today, including Core Personal Consumption Expenditure, Personal Income and Personal Spending.

Kiwi dollar strengthens on RBNZ's hawkish stance

The New Zealand dollar surged overnight after many investors, searching for higher yields, have taken the view that the RBNZ is almost finished its monetary easing. With official rates at 3 percent the central bank has previously signalled that it does not expect rates to be reduced much further. The kiwi dollar also gained support when figures released overnight showed New Zealand GDP shrank by less than expected.

Morning Rates Update

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