Sterling is under pressure this morning over losses in the banking sector. Lloyds is yet to strike a deal with the Treasury over inclusion in the Asset Protection Plan and HBOS has announced over £10 billion worth of write downs for 2008. GDP figures out in the US later today will be a source of interest for markets as growth prospects in the world’s largest economy remain a key driver of economic sentiment and currency exchange rates.

Pound Sterling - UK markets

The Pound has declined against the Dollar overnight and is also lower against the single currency as losses in the banking sector dominate headlines in the UK. Markets have gained some solace over the level of Government commitment to the bail out but the prospect of rising government debt is anchoring Sterling to the bottom end of trading ranges. The Pound has gained on the Australian and New Zealand Dollars as appetite for risk diminishes ahead of US GDP figures out today.

Yesterday Sterling suffered in response to the news that the Government would increase its stake in RBS to 84%. Current predictions show the level of taxpayer ownership could rise as high as 95%. Shares in fellow banking giant Lloyds have plummeted 7.4% this morning following news that the bank is yet to strike a deal with the Treasury to insure over £200 billion worth of toxic debt. Despite posting a profit of £807 million in 2008, Lloyds shares have been dragged down after the acquisition of HBOS late last year. HBOS lost £10.8 billion before tax in 2008. UK consumer confidence rose slightly in February, up 2 points from January as the effects of monetary easing are starting to work their way into the economy. There is no further data in the UK today.

US Dollar - US Markets

The Dollar has spiked against the Euro and Pound this morning ahead of annualised US GDP and personal consumption figures to be released later in the day. Investors remain uneasy about what these announcements will bring and this is fuelling risk aversion which is driving Dollar strength. The US Dollar is up over 1% on the Australian and Kiwi Dollars and has gained 0.95% on the Pound.

Growth prospects in the US remain a key indicator of market sentiment and currency exchange rates. An annualised contraction of -5.3% is expected for the fourth quarter following a 0.5% annualised contraction in the third. This represents the drastic decline in the US economy following the market shocks in late 2008. Personal consumption expenditure will also be viewed with interest as consumer spending accounts for 70% of the US economy. The Obama administration has instructed Citigroup to find a private source of capital after committing $45 billion to the bank last year. Shares in Citigroup fell below $2 for the first time in 18 years this week amid speculation that the Bank would be subject to nationalisation. GDP and personal consumption figures are out later in the day.

Euro - European Markets

The Euro remains bearish this morning due to a combination of risk aversion, lower commodity prices and the prevailing market view of economic deterioration in the Eurozone. The Euro is up against the Pound, Australian and New Zealand Dollars although has suffered declines against its other currency partners including the Yen, Canadian and US Dollar.

European equities were in retreat yesterday amid concerns over commodity prices and the economic situation in Eastern Europe. The Hungarian Prime Minister has requested a ?180 billion aid package for Eastern Europe which is set to include recapitalisation for banks and restructuring of foreign debt. The rapid depreciation of national currencies is also a pressing concern. The Polish Zloty has dropped 29% against the Euro in the last 6 months and other currencies have suffered similar declines. The EMU consumer price index and employment rate are out today along with the consumer price index for Germany.

Other Currencies - Highlights

Australian markets received a boost overnight as strong capital spending figures triggered confidence in the economy to weather global recession. Capital spending in the final quarter of 2008 showed a 6% rise despite expectations of a 3% decline. Capital spending makes up 10% of GDP and this sent the Australian Dollar higher against the US Dollar. The return of risk aversion this morning though has seen the US Dollar recover over 1% on the Aussie. The RBA interest rate decision is due next week.

Canadian stocks have rallied overnight as three major banks posted higher than expected profits. The National Bank of Canada, Royal Bank of Canada and Canadian Imperial Bank of Commerce each gained more than 6% after making profits without the help of government aid, boosting investor confidence in the sector.

The Pound is sitting lower this morning against the Euro and US Dollar after RBS has posted the largest loss in corporate history. The bank which is now 68% taxpayer owned lost £24 billion in 2008. In combination with GDP figures which showed the UK economy contracted -1.5% in the fourth quarter, this news damaged the exchange rate value of Sterling, sending it back to the bottom end of ranges against its international currency partners.

Pound Sterling - UK markets

The Pound has lost ground against the US Dollar and Euro overnight, declining to 1.42 and 1.11 respectively after GDP figures revealed a sharp contraction in the fourth quarter of 2008. The Pound is also down against the Swiss Franc and Australian Dollar, but has gained on the Yen and other Asian currency partners.

The Pound declined yesterday as GDP figures revealed a sharp 4th quarter contraction of an unrevised -1.5%. A breakdown of these figures showed a 4.5% decline in industrial production and a 2.3% decline in investment. The only expansion came from Government services which grew by 1.5% and David Blanchflower of the MPC is predicting first quarter GDP to be significantly worse. This morning the Pound has suffered further following news that RBS posted a loss of £24.1 billion in 2008, the largest in corporate history. This was blamed on ‘unprecedented turbulence’ in financial markets and the bank expects further difficulty throughout 2009. After paying the government £6.5 billion worth of preferential shares to take part in the Asset Protection Scheme, the bank is to place £300 billion worth of troubled assets with the UK taxpayer. Nationwide building statistics released this morning show house prices have fallen 1.8% in February, taking the average house price down 17% from a year ago. There is no further data in the UK today.

US Dollar - US Markets

The Dollar is down against the Pound and Euro this morning as weak home sales figures yesterday damaged the Dollar’s safe haven image. The Dollar is also down against the Canadian, Australian and Kiwi Dollars as markets retain a small appetite for risk in the wake of comments from Ben Bernanke and President Obama yesterday.

News that US home sales fell by 5.1% in January capped Dollar gains yesterday. The Federal Reserve expects an upturn in growth to take place in the third quarter of 2009 and despite recent rallies, this news is muting the tone in UK and European equities, as growth here is expected to follow the US by approximately three months. A raft of US data is out today from jobless claims to durable goods orders and market sentiment is likely to be the primary determinant of currency exchange rates.

Euro – European Markets

The Euro is up against the US Dollar this morning, trading at 1.27 and the Euro-Pound exchange rate is currently 0.89. The Euro has also strengthened on the Yen and it’s other Asian currency partners.

European equities remain positive this morning following Ben Bernanke’s announcement that the Federal Reserve would not be looking to nationalise major American banks. UBS shares rose yesterday after Switzerland’s biggest bank hired the former CEO of Credit Suisse to restore market confidence. The news was interpreted positively by markets and Europe’s Dow Jones climbed 1.9%. The German unemployment rate has risen to 7.9% as a further 40 000 people were made jobless in February as recession deepens in the Eurozone’s largest economy. Today markets will be interested in consumer, industrial and economic confidence figures to be released in the Eurozone.

Other Currencies - Highlights

The Yen fell to a three month low against the US Dollar and weakened against the Euro overnight after figures yesterday revealed a 46% drop in exports. The Yen is heading for its worst month against the Dollar in 13 years and faces threats to its status as an international safe haven as the country is hit increasingly hard by the global recession. A series of significant data is released in Japan today, including industrial production, consumer price index and retail trade figures.

Figures released this morning show UK GDP contracted 1.5% in the final quarter of 2008. This takes annual growth to -1.9%; a figure largely in line with market expectations. Wall Street gained over 3% yesterday, the largest gain in a month, after comments from Head of the Federal Reserve Ben Bernanke quelled investor fears over the state of the US banking sector.

Pound Sterling - UK markets

The Pound is up 0.6% on the Dollar this morning, trading at 1.45 on the back of increased risk appetite after Wall Street gains yesterday. The Pound is also up against the Euro, Yen and Australian Dollar, trading at 1.13, 141 and 2.22 respectively.

UK GDP figures out this morning show the economy contracted by -1.5% in the fourth quarter of 2008. However despite this, the Pound has strengthened as a result of positive market sentiment in the US. Minutes from a meeting of EU officials yesterday showed concern over the ‘financial stability’ of the British economy following the rapid demise of the Pound late last year. The Pound has fallen 23% against the Euro as a major trading partner, this weakness is a concern for the Eurozone. Exceptionally high volatility over recent months is also undermining financial stability. UK statistics yesterday showed mortgage approvals down 40% on this time last year and unemployment continues to rise. However the CBI Distributive Trades survey was less negative than expected and the retail sales index rose from -47 last month to -25 this month due to more positive sales figures. The Bank of England MPC meets next Thursday and market expectations are for a further 0.5% rate reduction. Reductions beyond 1% are regarded as less significant and quantitative easing is likely to be the path of the government over the coming months. There is no further data in the UK today.

US Dollar - US Markets

Mixed results for the Dollar overnight as increased risk appetite led to a redistribution of investor funds. The Dollar weakened against the Euro and Pound to trade at 0.77 and 0.68 but retained gains against some of its Asian and European currency partners.

Head of the Federal Reserve Ben Bernanke quelled fears over the state of the US banking system yesterday in a speech noting that nationalisation of major banks would not be necessary. Bernanke stressed the role of government as supervisor rather than shareholder and Wall Street posted its largest daily gains in a month. President Obama also addressed the nation, detailing aspects of an ambitious government plan which includes both stimulating and greening US industry, cutting taxes and halving the US budget deficit within the next five years. Despite the inevitable criticism for the over ambitious nature of the plan, stock and equity markets gained confidence, improving global risk appetite. Also yesterday the Washington Post survey showed US consumer confidence plunged 10 points to a record low in February, on the same day as the German IFO revealed the same results in the Eurozone. US Home sales figures are out later today.

Euro – European Markets

The Euro has gained against the Dollar to trade at 1.28 and is up against the Yen as well as its European currency partners.

Stocks in Europe and Asia advanced following news from the US that the government would not have to nationalise major banks. Shares in Deutsche Bank and PNB Paribas, Germany and France’s largest banks both surged more than 7%. German GDP figures released this morning show the economy contracted -2.1% in the fourth quarter of 2008, reflecting the rapid deterioration of the European economy. This takes annual growth to 1.6% a figure that was largely in line with market expectations. The ECB has strongly hinted at a further interest rate reduction in March. The German consumer price index and unemployment figures are out tomorrow.

Other Currencies - Highlights

The Australian and New Zealand Dollars rallied overnight, following comments from Ben Bernanke which served to strengthen risk appetite internationally. The Australasian currencies continue to shadow US equities which remain the primary determinant of market sentiment.

Japanese exports have plunged 45.7% in January, taking them to the lowest figure in 10 years as a result of reduced demand from Japan’s major trading partners. The decline was fuelled by a 53% drop in exports to the US, 47% to the Eurozone and similar steep declines to China and other Asian economies. The Canadian Dollar is up to 1.24 against the US while the Swiss Franc is down on the Dollar, a further symptom of increased appetite for risk.

Some good news has been reported from the British Bankers’ Association (BBA) this morning, with early indications showing that mortgage approvals rose in January, with approval levels hitting 23,376 last month, up 4% from 22,416 in December.

But, as it seems with every other story that has some good news in it, there is also some not so positive reports, with the number of approvals in January still 43% lower than the same month a year earlier.

Hardly surprising in the current climate, but the fact that mortgage lending is continuing to rise month on month could be taken as a sign that we are starting to emerge from the gloomy mist which has been partially caused by the lack of lending over the past 6 or 7 months.

BBA statistics director, David Dooks, said of the latest data:

“The high street banks’ mortgage lending is still seeing double-digit annual growth, albeit in a much slower market. Lower borrowing costs and falling property prices have underpinned demand at these lenders, who are providing over two-thirds of all new mortgage lending. There is only limited demand from households for unsecured credit, while a fall in their deposits in January reflects a tendency to draw on cash or to move into alternative financial products.

“Lending to non-financial companies rose after two monthly falls, with modest increases in several industrial categories, while finance for other financial companies reversed the year-end fall in lending.”

The BBA also reported that in January, net mortgage lending rose by £2.9 billion, consumer credit rose in line with the recent average and overall company finance increased by £14.1 billion, reversing the previous month’s fall.

However, personal deposits fell by £2.3 billion as spending drained cash and savers sought alternative deposit products.

It is good to see some positive comments from the BBA, hopefully which will hopefully encourage more people to apply for mortgages who might not have previously considered applying, as they thought they did not stand much of chance in being approved. If we see another month of increased approvals for February, indications would suggest that the housing slump has reached its lowest bottom point and that the only way from here on in is up.

But, until we see the figures from the BBA and other leading bodies next month, we will take the positives from the news today and hope there is much more to come.

The US Dollar has weakened overnight following reports the US government may nationalise major US banks as a result of the financial crisis. Sterling has staged a minor rally following the publication of retail sales figures for January and EU leaders met over the weekend to discuss economic strategy ahead of the G20 summit in London in April.

Pound Sterling - UK markets

Sterling has strengthened overnight, climbing to 1.45 against the US Dollar and gaining 1.6% on the Yen amid news that the US government may nationalise major banks. The news fuelled a round of risk aversion but this failed to strengthen the traditional safe havens and Sterling gained on its major currency partners overnight.

PM Brown has announced a £14 billion credit injection into Northern Rock and the bank is to start lending again, expected to take on £5 billion worth of mortgages this year. This is a reversal of earlier government decisions and comes tempered with the warning that banks should end risky speculation and return to their more traditional role as ‘stewards’ of people’s money. Retail sales figures on Friday boosted the Pound as they rose by 0.7% for the month of January taking annual sales up by 3.6%. However this comes at a time when retail analyst Experian predicted 10% of high-street stores will be empty by the end of February and more solid trends may be visible in quarterly statistics. Nationwide housing prices are released in the UK today with new mortgage approvals out tomorrow.

US Dollar - US Markets

The Dollar has weakened for the third consecutive day on speculation that the US government may bail out major banks even further. The Dollar is down 0.74% on the Canadian Dollar and has also declined the Pound, Euro and other major currency partners.

Dollar weakness comes after Christopher Dodd, Chairman of the Senate Banking Committee announced that nationalisation of some banks may be necessary. Wall Street and equity markets fell to multi-year lows and the Dollar declined against the Euro and Yen. The Philadelphia Fed survey on Friday showed manufacturing has slumped to a 19 year low and a survey of business economists has shown the US recession is the worst in three decades. Consumer spending accounts for 70% of the US economy and this is expected to decline by 2.3% this year. There is no data out in the US today.

Euro – European Markets

The Euro has also rallied against the US Dollar, currently sitting at 1.28 after attempting to break 1.30 overnight. The Euro has also gained on the Yen and is currently trading at 0.88 against the Pound.

Leaders of Britain, France, Germany and Italy met over the weekend to formulate a position ahead of the G20 meeting to take place in London in April. Tighter market regulation and an end to risky speculative investments are expected to top the agenda. European leaders also agreed the IMF’s emergency fund for debt stricken countries should be increased to more than $500 billion. ECB President Trichet is to give a speech today.

Other Currencies - Highlights

The Australian and New Zealand Dollars have appreciated for the fourth consecutive day against the Dollar on speculation that the US Government is to increase its stake in the major US Banks. The Yen also declined amid speculation over the deteriorating Japanese economy expectations that export demand will continue to slump. This weakness could eventually undermine the safe haven status of the Yen. Minutes from the Bank of Japan’s February meeting are released today. The Canadian Dollar has gained against the US following weaker American equities and reports that Canadian core inflation fell by 0.4% in January. Canadian retail sales figures are due today.

New statistics were published today by the Council of Mortgage Lenders on mortgage arrears and possessions. Unsurprisingly, full year figures for 2008 show a sharp rise on 2007, but many steps are being taken to help borrowers facing difficulty. Interestingly, there were 5,000 fewer repossessions than expected and were forecast in the previous year, with the measures that were introduced towards the end of year seemingly having some kind of effect.

A few stats and figures released by the CML today:

* 5,000 fewer repossessions than forecast in 2008
* 40,000 repossessions in the year - 1 in 290 mortgages
* 10,400 repossessions in the fourth quarter - 1 in 1,100 mortgages
* 1 in 64 mortgages in arrears of 2.5% or more
* 1 in 53 mortgages in arrears of three months or more (inflated by lower interest rates)
* 75,000 repossessions forecast for 2009 remains unchanged.

Around 10,400 properties were taken into possession by first charge mortgage lenders in the fourth quarter of 2008, down from 11,100 in the previous quarter but up from 6,900 in the fourth quarter of 2007, according to the Council of Mortgage Lenders. The total number of first-charge repossessions in the year was an estimated 40,000. This was 5,000 lower than the CML’s original forecast for the year.

The fact that there were 11% fewer repossessions than expected, despite a worsening economy and rising unemployment, demonstrates that mortgage lenders are making strenuous efforts to ensure that repossession really is a last resort. It is important to recognise that repossessions include a proportion of abandoned properties and property fraud. They also include buy-to-let repossessions, as well as home-owner repossessions. In the vast majority of cases where home-owners are committed to working with their lender to keep their home, this outcome is successfully achieved.

At the end of 2008, around 182,600 mortgages - or 1.57% of the total - had accumulated arrears equivalent to 2.5% or more of the outstanding balance  - for example, £2,500 or more on a £100,000 balance (a £97,500 mortgage plus £2,500 arrears). This compares with 1.29% at the end of the third quarter of 2008, and 1.08% at the end of 2007.

On a “number of months” basis, 219,100 mortgages were in arrears of more than three months at the end of 2008, up from 166,600 at the end of the third quarter of the year, and up from 127,500 at the end of 2007. However, the big reduction in mortgage rates experienced in 2008 was a significant influence on the rise in the number of arrears cases measured on a “number of months” basis - as the same given sum of arrears represents a higher number of months payments as interest rates fall.

The vast majority of people who face temporary difficulties successfully work with their lender to stay in their homes, and get their mortgage back on track over time. Where borrowers contact their lender early, maintain good communication and are committed to paying what they can and resolving their arrears, lenders work hard to help wherever the household’s future prospects look feasible.

Source – CML Press Releases

The Euro has suffered its biggest weekly decline against the US Dollar in a month – and the seventh weekly loss out of eight – amid speculation that European Central Bank President Jean-Claude Trichet will today signal that he may cut interest rates to spur growth. The 16-nation currency is currently hovering just over 1.26 against the US Dollar.

Pound Sterling - UK markets

According to the Council of Mortgage Lenders, the number of homes that were repossessed in the UK declined slightly in the fourth quarter. A total of 10,400 homes were taken into possession between October and the end of the year, down from 11,100 between July and September.

However, a report released by the Office for National Statistics showed a surprising lift in UK retail sales in January. The rise is being attributed to the numerous price cuts that UK retailers made during the previous month. Despite the closure of numerous stores, such as Zavvi and Woolworths, retail sales have climbed 0.7% after increasing 1.7% in December. Economists had predicted a 0.1% drop.

US Dollar - US Markets

The Dollar has declined over 1% against the Euro this morning as fears abate over European exposure to bad debts and the US stimulus packages revives appetite for risk. The Dollar is also down over 1% on the Australian and Kiwi Dollars and is down to 0.69 against the Pound.

Yesterday’s figures in the US revealed housing starts and new building permits dropped to record lows in January along with industrial production figures which contracted 1.8% for the month. This signals a weak start to 2009 after the US economy contracted 3.8% in the final quarter of 2008. President Obama released details of a $275 billion housing package which is an attempt to address the root of the financial crisis and prevent the rising number of foreclosures on American homes. An estimated 400,000 home owners lost their homes in the US last year. This comes in the same week as the $787 billion rescue package, yet market response remains uncertain as details and growth prospects are unclear. The Federal Reserve have also announced they expect unemployment to rise to over 8.5% and projected long-term interest rates at 2%. The FOMC minutes are released today along with the Philadelphia Fed and jobless claims figures.

Euro – European Markets

French consumer prices fell in January for the seventh month in a row, but by less than expected, as prices for energy slumped and those of manufactured products remained unchanged. The French CPI report dropped 0.4% on the month, cutting the yearly increase to 0.7%, French national statistics bureau Insee said.

However, other key gauges of euro zone services and manufacturing activity unexpectedly crashed to new lows in February, suggesting that economic contraction in the first quarter of this year may be even worse than the final months of 2008.

Data released by Markit today has shown that the Purchasing Managers Index for the dominant service sector slumped to an 11-year survey low of 38.9 in February, confounding expectations that we would see a rise from 42.2 to 42.4. The data also showed price pressures sinking to survey record lows and is sure to strengthen expectations that the ECB will be forced to cut interest rates when it meets again in March.

Factories in the euro zone fared little better, with the manufacturing PMI also coming in at a record low of 33.6, considerably below the 50.0 mark that divides growth from contraction and, indeed, the 34.4 level seen January. The fall in both sectors took the combined composite index down to a record low of 36.2 from January’s 38.3 and well below the 38.5 forecast. The suggestion is that the 1.5% contraction in the economy in the final quarter of 2008 may be even worse in January-March.

Other Currencies - Highlights

The South Korean Won nosedived to a three-month low against the US Dollar this morning, breaking the 1,500 mark for the first time since November 2008 and closing yesterday at 1,506 Won against the US Dollar. Analysts predict that the Won will stay on this downward slump for the time being at least.

I was hoping to get a blog done yesterday to discuss the ongoing crisis but didnt…with the news that the FSA chief has resigned due to the whistleblower comments of yesterday, I have more discuss!

In fact, rather than prattle on like so many currently do as to the why’s and wherefores, I’d like to offer another solution. Split the retail and investment banks completely…. Of course, it is likely that the investment bank is funded from the retail banking part of each Group, so whether this ever happened is open for debate. However, with banks running to the taxpayer tail between their legs, it’s about time the taxpayer demanded and got what they were after.

What is it the taxpayer wants you may ask? A secure and well run bank for starters. A return to the days when you could call in at your local branch and talk to someone who could make a decision. I recently walked into my local branch to get some old bank statements and was told I had to write off and I would be charged £30 for the pleasure! The fact that a printer was right next to my personal banker did not seem to help…

Bank customers also want a return to customer service as at least an equal to a bank’s other primary objective of making money (it is not keeping your money safe!). If a bank wishes to gamble with funds through its investment division it is quite entitled to, but not at the loss of security for its customer’s deposits. The only alternative can be that the two divisions are split, with tax payer money funding the retail bank only (and therefore its improved service) whilst the investment bank fights on it own to get itself out of the trouble it got itself into…..In this instance retail banking would not suffer.

Unfortunately this is not the case, and as a result retail banking will continue to suffer whilst the cash machine known as taxpayer funds are diverted into the investment division to prop it up (or retain the usual profit margins, commonly known as “re-capitalising”).

Businesses that are failing are left to die, as we all saw with Woolworths. Why shouldn’t that be the same for investment groups? Split the banks, nationalise the retail side until it improves, and let the investment division fight like we all have to…saying sorry to government this week is not, and should not, be enough!

As we like to do at Discover and Invest, let’s look for the solutions to our needs…

The Pound fell to a two week low against the Dollar yesterday as minutes from the MPC meeting revealed quantitative easing is increasingly likely for the UK. The Euro is under pressure due to concerns over the economic situation in Eastern Europe and the US has passed a $275 billion package to address the crisis in the housing market.

Pound Sterling - UK markets

The Pound is gaining against the US Dollar this morning, currently trading at 1.43 after reaching a two week low yesterday. The release of MPC minutes indicating that quantitative easing was likely damaged the value of the Pound, although it was the Euro that came under pressure over concerns surrounding Eastern European economies. The Pound-Euro exchange rate is currently 1.13 and Sterling has gained against its major foreign currency partners.

Having revealed an 8-1 vote in favour of a 0.5% reduction in the base rate, the MPC minutes also indicated that quantitative easing is imminent as the Bank will buy gilts and other securities to increase the supply of money into the economy. With interest rates effectively at zero, the Bank is seeking more unconventional methods of unlocking credit markets and alleviating toxic debts. Sentiment regarding Sterling has turned marginally positive as markets focus on bad news coming from the Eurozone and Asian economies. This has allowed Sterling to stage a minor rally against the Euro and Japanese Yen. Money supply data is out in the UK this morning and retail sales figures are due tomorrow.

US Dollar - US Markets

The Dollar has declined over 1% against the Euro this morning as fears abate over European exposure to bad debts and the US stimulus packages revives appetite for risk. The Dollar is also down over 1% on the Australian and Kiwi Dollars and is down to 0.69 against the Pound.

Yesterday’s figures in the US revealed housing starts and new building permits dropped to record lows in January along with industrial production figures which contracted 1.8% for the month. This signals a weak start to 2009 after the US economy contracted 3.8% in the final quarter of 2008. President Obama released details of a $275 billion housing package which is an attempt to address the root of the financial crisis and prevent the rising number of foreclosures on American homes. An estimated 400,000 home owners lost their homes in the US last year. This comes in the same week as the $787 billion rescue package, yet market response remains uncertain as details and growth prospects are unclear. The Federal Reserve have also announced they expect unemployment to rise to over 8.5% and projected long-term interest rates at 2%. The FOMC minutes are released today along with the Philadelphia Fed and jobless claims figures.

Euro – European Markets

The Euro has strengthened this morning, gaining over 1% on the US Dollar to 1.26 after falling to its lowest rate since mid-November yesterday. The Euro-Sterling exchange rate is currently at 0.88 and the Euro has advanced on the Japanese Yen and New Zealand Dollar.

The Euro came under pressure yesterday as news of the deteriorating economic situation in Eastern Europe raised fears over the exposure of Western European banks. The Polish Zloty, Czech Koruna and Hungarian Forint have all reached multi-year lows against the Euro and major European banks warned of pending job cuts despite Societe Generale posting a fourth quarter profit. European equities gained for the first time in 8 days on the back of better than expected profits released from Nestle and BNP Paribas yesterday. The ZEW survey for Switzerland is out this morning and EMU purchasing manager indices for manufacturing and services are due tomorrow.

Other Currencies - Highlights

The Australian Dollar is under pressure this week amid news that Moody’s is to review the credit rating of the Australian Government. The Standard and Poor’s has previously claimed Australian banks are ‘well placed’ to withstand the downturn yet recent economic data from Australia has been worse than expected. The Bank of Japan left interest rates unchanged yesterday at 0.1% and the Yen fell to a 6 week low against the Dollar with the passing of the Housing Bill in the US Senate. Consumer Price index figures for Canada are due tomorrow.

The Sterling-Dollar exchange rate has declined this morning after the release of MPC minutes which showed an 8-1 vote for a 0.5% reduction in the base rate. David Blanchflower was again the dissenting voice within the Bank as he argued the 1% reduction should be taken ‘without delay’. Global equities remain bearish as unease surrounds global recovery prospects and this is putting pressure on European and Asian exchange rates.

Pound Sterling - UK markets

The Sterling-US Dollar exchange rate declined sharply this morning with the release of the MPC minutes and is currently sitting at 1.41. The Pound is also down over 1% against the Australasian currencies and the current Euro exchange rate is 1.12.

Minutes from the February MPC meeting released this morning revealed an 8-1 vote for a 0.5% reduction in the base rate. The Bank has reduced interest rates from 5% to 1% in the last 5 months and is predicting the UK economy will contract 4% from mid 2008-mid 2009. This is a significant revision of the Bank’s November forecast and is indicative of the steep decline we have seen since the Lehman shocks in September 2008. Recovery prospects depend largely on global economic efforts, hence the focus on US equities and the Bank of England is now looking to more unconventional fiscal policy. The main concern of the MPC is stimulating credit flows and restoring business and consumer confidence. This morning, the Work Foundation has urged the Government to provide the same financial support for manufacturing as it has for banks. Manufacturing remains a crucial sector for employment, export and GDP and is under serious pressure as global export markets contract. Results of the CBI Trends Survey are also published today.

US Dollar - US Markets

The Dollar has strengthened sharply against the Pound and Euro this morning as negative economic data continues to pressure the European currencies. Against the Yen, the Dollar has climbed to 92.56 and it has weakened against the Australian and New Zealand currencies.

The $787 billion Federal Reserve rescue package was signed by President Obama yesterday, which gave a slight boost to the US Dollar as it was described as the ‘most sweeping package’ in economic history. However the tone of global equities remains bearish, as uncertainty surrounds future economic prospects. General Motors and Chrysler have each asked the government for further aid in addition to that already provided by the Federal Reserve. However further aid is conditional on their economic viability and the big three auto manufacturers have until the March 31 deadline to prove their worth. The price of oil has fallen to $41 a barrel on the back of uncertainty with regard to growth prospects. Housing statistics are out in the US today.

Euro – European Markets

The Euro is weaker against the US Dollar this morning, trading at 1.25 and has also declined against the Australasian currencies. The Euro has gained against the Yen and is up to 0.88 versus the Pound following the release of minutes from the February MPC meeting.

European stocks have fallen for the third day in a row along with Asian equities on the back of global unease regarding recovery prospects. Societe Generale, France’s third largest bank has posted a profit in the fourth quarter of 2008 despite losses in its investment unit and the French government has submitted details of a €6 billion plan to aid French auto manufacturers to the European Union. The Euro has also declined after Moody’s claimed recession in Eastern Europe would affect the major central European economies. Euro sentiment could weaken as recession deepens across the Eurozone. There is no major data out in the Eurozone today.

Other Currencies - Highlights

Asian equities have displayed negative trends for the third consecutive day as they are still suffering repercussions from Japan’s economic contraction and the global sense of unease. Japan went from being one of the best performing economies to one of the worst in the three months to December as the US asset bubble and cheap Yen were obliterated by the financial crisis. The Australian and New Zealand Dollars slumped against the Euro overnight, driven lower by concern in Eastern Europe. The Bank of Japan interest rate decision is due tomorrow.