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.