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.