The head of the Organisation for Economic Cooperation has echoed a statement from the IMF by saying that the world economy will most likely shrink this year. Angel Gurria, head of the body that represents the 30 most industrialised nations, said, “We are probably seeing a world which will go negative.”

Pound Sterling - UK Markets

A report from the Confederation of British Industry claims that demand for UK exports has slid to a new low, despite the 25% fall in the Pound over the past year. The business lobby group said that 51% of firms reported that their export order books were below normal in the past month. It is the lowest level for this measure in a decade. The finding will dash hopes that the weak Pound will help support the UK economy throughout the recession. Meanwhile, expectations for export orders remain close to a 30-year low.

Although UK economic data this week has continued to point to a deep downturn, Sterling has risen against the US Dollar today. The US currency set for its biggest weekly percentage fall since the early 1970s after the Federal Reserve’s shock move this week to buy long-term Treasuries.

US Dollar - US Markets

The House of Representatives have voted in favour of a bill to levy a 90% tax on bonuses over $250,000 from firms bailed out by taxpayers. The move follows outrage over the decision by AIG to award its employees $165m in bonuses after taking $170bn in aid from the government. House Speaker Nancy Pelosi said, “We want our money back and we want our money back now for the taxpayers.”

With the Federal Reserve introducing quantitative easing after the unexpected announcement that it will start buying Treasuries, the Dollar is trading near a two-month low against the Euro, and is heading for a record weekly drop. The US currency is on course for a second weekly decline versus the Yen and both the Australia and New Zealand Dollars are also heading for third weekly gains against their American equivalent.

Euro – European Markets

The EU has said it may double the amount of emergency funding to help members in need of urgent budget support to €50bn. European Commission President Jose Manuel Barroso said he was confident the deal would be reached on the final day of a two-day summit in Brussels.

Spain continues to experience one of the Eurozone’s most pronounced economic downturns, with a Spanish Statistics Institute report showing that Spanish industrial orders fell 30% on the year in January, the biggest drop since 2002 when the country began recording the data. Orders for durable consumer goods dropped 33%, while non-durable consumer goods orders decreased 7.8%.

Other Currencies - Highlights

Asian currencies rose, and are heading for their best week against the US Dollar this year, following optimism that stimulus spending plans will avoid a deeper global recession.

South Korea’s Won and Taiwan’s Dollar rallied after central banks in the US, Japan and the UK announced plans to buy bonds, increasing the supply of Dollars, Yen and Pounds. The MSCI Asia Pacific Index of regional stocks was set for its biggest weekly advance since August 2007 and the cost to protect Asian debt outside Japan fell.

Barclays have confirmed this morning that they are in talks with the Treasury over its potential participation in the government’s Asset Protection Scheme. Lloyds Banking Group and RBS are already signed up to the scheme. Barclays said that any decision on whether it would participate in the scheme would be based on “the economic merits to shareholders.”

Pound Sterling - UK markets

Barclays also confirmed that it is seeking to raise around £4bn by selling part of its £706bn iShares fund management arm in a further attempt to raise capital without turning to the government for any direct financial support.

There is now an average of 10 jobseekers for every vacancy advertised in the UK, the TUC has warned. The situation is worst in the South East of England where the trade union body said its research found 60 people chasing each job.

Official unemployment data compiled by the Office for National Statistics will be published on Wednesday and are expected to show UK unemployment at two million. Meanwhile, the British Chambers of Commerce estimated last week that UK unemployment would reach 3.2 million - or just over 10% of the workforce - by the second half of next year.

US Dollar - US Markets

Federal Reserve Chairman Ben Bernanke suggested in a televised interview on CBS’ 60 Minutes programme that the US recession would “probably” end in 2009, but that his country had averted the risk of plunging into a depression. Bernanke’s remarks came ahead of a two-day meeting by the Fed that begins tomorrow. It’s anticipated that they will launch some new programmes or expand existing ones to get Americans spending again. Any decisions are likely to be made public on Wednesday.

Under pressure insurance group AIG has revealed that it has spent billions of Dollars in taxpayer funds since its September bailout, with €105bn flowing to US states and banks including Goldman Sachs, Societe Generale and Deutsche Bank. Donald Powell, former chairman of the Federal Deposit Insurance Corp, sad the news “puts a sour taste in the American taxpayer’s mouth.”

US data revealed that retail sales fell by just 0.1% compared with the same month last year, better than the 0.5% drop analysts were expecting. American consumers have become more cautious amid difficult economic conditions, cutting back on more expensive items such as new cars, but continuing to flock to supermarkets and discount stores in search of bargains.

Euro – European Markets

Risk appetite continues to dominate European markets, which are posting increases above 2% today, with the EUR-GBP rate returning to its highest level since late February.

The Euro rose against the US Dollar as financial ministers from the G20 concluded their summit in London over the weekend, vowing to do “whatever is necessary” to fix the global economy. This statement is likely to include measures to supervise freewheeling hedge funds and restore bank lending by dealing with the shaky securities burdening their finances.

During the G20 meeting, Russia proposed the creation of a new reserve currency to be issued by international financial institutions. Leaders of the G20 leading economies will meet next month in London, with Russia calling for countries whose currencies currently have reserve status to adopt international rules on fiscal and macroeconomic discipline.

Later today, the European Monetary Union will release the Consumer Price Index and Employment Change figures for February.

Other Currencies - Highlights

The Swiss Franc has suffered its biggest ever single day drop against the Euro. The drop was triggered by news that the Swiss National Bank (SNB) will buy overseas currencies to try and stop its own currency rising further against the Euro.

Japanese stocks have risen almost 2% as the Japanese Central Bank considers buying loans and bonds to bolster its capital. The news has boosted Asian markets, with the Indian Rupee rising to its highest level for two weeks.

Yesterday brought an improvement in risk appetite with the news that Citigroup operated profitably in the two months of 2009. Accompanied by a speech from Ben Bernanke, this news restored market confidence and equity markets rallied which was reflected in currency exchange rates. This rally however has excluded Sterling, which remains weak on the back of unease surrounding Bank of England policy and a sharp decline in industrial production figures.

Pound Sterling - UK markets

The Pound fell to a 3 month low of 1.36 against the US Dollar yesterday and a five week low against the Euro, pressured by a combination of risk aversion, market unease and negative economic data from the UK. This morning the Pound has been trading in the vicinity of 1.37 versus the Dollar and 1.08 versus the Euro. The Pound has trimmed losses against the Australian and Kiwi Dollars although remains weak against its international currency partners.

Uncertainty surrounding the Bank’s quantitative easing programme and sharp declines in manufacturing and industrial production weighed on Sterling overnight. The Bank of England is to embark on a £75 billion quantitative easing programme today, which is designed to stimulate the UK economy over the next three months. Figures yesterday showed a 2.9% decline in the manufacturing sector prompting speculation that UK output could slump by 4% in 2009. Manufacturing output has now been in decline for 11 consecutive months and analysts are predicting the -1.5% contraction in the final quarter of 2008 could be repeated in the first quarter of 2009. Goods trade balance figures released this morning show a current deficit of -£7.7 billion illustrating reduced demand for UK exports and this could also weigh on Sterling throughout the day. The rest of the week is light for UK data.

US Dollar - US Markets

Results for the US Dollar exchange rates are mixed this morning as improved appetite for risk has permitted minor rallies in the higher yielding currencies. The Canadian, Australian and New Zealand Dollar have all gained on the US, along with the Euro, Pound and Swiss Franc.

US markets rallied yesterday after Ben Bernanke boosted confidence by stating the US could be out of the economic slump by the end of the year. Citigroup, which is now 40% government owned, operated profitably for the first two months of 2009 and this news sent the Dow Jones up 300 points after touching on 12 year lows last week. The FTSE 100 also gained 5%. Bernanke emphasised in his speech that stability in the banking sector is still a prerequisite to economic recovery, implying that this has not been achieved as yet. Moody’s has named a list of ‘bottom rung’ American firms that are likely to go bust this year due to limited credit markets and global downturn. The list includes the big 3 car manufacturers, GM, Ford and Chrysler as well as a number of high profile media companies and casinos. US mortgage application figures are due out today.

Euro – European Markets

The Euro is largely unchanged this morning, trading at 1.26 against the US Dollar and up slightly against the Pound to 0.92. The Euro has also gained on the Swiss Franc, Australian and Canadian Dollars.

Switzerland’s biggest bank UBS has posted a 20.9 billion Swiss Franc loss in 2008, the largest in Switzerland’s history. The German producer price index released this morning shows a -1.2% price decline in January, a day after figures showed a sharp narrowing of the German trade deficit and a decline in French industrial output. Recession is progressing with gathering pace in the Euro zone. German factory orders are out later this morning and the ECB monthly report is released tomorrow.

Other Currencies - Highlights

Dominique Strauss Kahn, Managing Director of the IMF has made a speech in Tanzania predicting that world growth would be 0% this year. Strauss Kahn has dubbed the economic downturn the ‘Great Recession’ and the IMF expect growth rates in Africa to significantly decline due to a lack of foreign investment in the region.

Australian business conditions have deteriorated to the lowest levels since the early 1990’s. The Australian and Kiwi Dollars gained ground overnight following Ben Bernanke’s speech in the US which restored market confidence. Gains for the Kiwi will be limited by the pending RBNZ interest rate decision. New Zealand retail sales and Japanese GDP are due out tomorrow.

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.

Going back a few years now I can remember learning of a new multi-skilling scheme introduced by the powers that be at the enormous Nissan factory near Sunderland in the North East. It began as it always had, in that you would leave school and serve your apprenticeship in a given area of speciality. Up until recent years this was all the learning one would undertake. However, once your apprenticeship has been served they would now encourage further part time training in another two functions, the idea being that work would be more varied & therefore interesting. I’m sure many thought this was brilliant & forward thinking.

So why might I be mentioning this and to what relevance does it have to either investment and/or the current economic climate? Well firstly it comes off the back of another blog I wrote a few days ago regarding the recent buoyancy of the food retail industry so I wanted to diversify my opinions towards an industry that seems to be experiencing the opposite during these harsh times. Do people need to buy food? Of course we do. Do people need to buy cars? No, we do not. Let’s face it, for the majority of us cars are a luxury where as food is a necessity. On this basis the two seem incomparable, but for me both industry sectors had three things in common with the banking sector, being oversight, arrogance and complacency.

We have all known that the cost of oil will rise over the years as it has indeed has done for the last decade. We all know that this will not particularly improve in a hurry either. More and more people such as I living in urban areas fail to see the need to own a car due to the expense and availability of public transport.

In recent months we have seen the likes of Honda announce a halt on production for what will be four months come the end of March. Other manufacturers in the UK such as Vauxhall, Mini & the aforementioned Nissan have initiated other short term closures, the latter also announcing redundancies.

With the European car market showing no signs of recovery, will this just be the beginning for what could become a beleaguered industry in the oncoming quarter(s)? On the day the government announce a second bank bail-out there have been calls in the media for them to follow their example by stepping in to rescue the motor industry also. Personally, I can’t see it.

Yes the recession hasn’t helped at all and this is only too well highlighted by the manufactures of the more ‘top end’ vehicles such as Jaguar/Landrover and Aston Martin who have announced redundancies in addition to production halts at both and also at their rivals, Bentley. Will it stop here? In my food retail article I highlighted the media ‘scare tactics’ by way of their lack of reporting on the acquisitions & investment waiting in the wings but in this case I just can’t see it, the food Retail industry benefiting fortunately by virtue of need.

With seemingly neither private investment forthcoming nor the likelihood of the government stepping in to save the day, I only hope that, in particular for the affected workforce, these companies have learned from the collapse of Rover and have contingencies in place to weather the storm; particularly in the case of Nissan having invested so much in their people. Accusations of oversight, arrogance and complacency are one thing and will be a pivotal factor should things worsen, which will make the oncoming quarters vital to their futures. Where it will really become a key factor is if they hedge their future production plans against the hope that if & when the economy recovers, the industry will follow suit. As oil prices continue to rise & the trains continue to take more of the strain, I’m not convinced it will.

The Pound remains under pressure this morning, trading just off recent lows against its major currency partners. Barclay’s shares have risen nearly 40% in response to claims from the Chairman and Chief Executive the bank is operating in good financial health and the Federal Reserve is due to make an interest rate decision later in the week.

Pound Sterling - UK markets

Sterling remains under pressure internationally, trading just above recent lows against the Dollar and Euro. The Pound is up against the Asian currencies, having gained 0.11% on the Yen this morning.

The announcement of fourth quarter GDP figures on Friday sent the Pound to its lowest level since 1985 versus the US Dollar. With the economy having contracted -1.5% already, Sterling remains under pressure as a second series of tax cuts and emergency capital injections are looking likely for the UK. The exception appears to be Barclay’s, which despite announcing £8 billion write downs last year, has gained 40% in share prices this morning. This comes after the chief executive and chairman penned an open letter reassuring customers of their profitability. Steelmaker Corus has announced 3500 jobs cuts, more than 2000 of which could be in the UK as the credit crunch continues to force redundancies in the manufacturing sector. Mortgage approvals in the UK have increased to 22 100 in December following 17 773 in November. There is no further data in the UK today.

US Dollar - US Markets

The Dollar has weakened against the Pound and Euro this morning to 0.73 and 0.77 respectively, whilst strengthening against the Yen and Australasian currencies.

This week Congress will debate the delivery of an $800 billion rescue package from President Obama and his team of advisors. The plan is expected to cost 5% of GDP and create 4 million jobs in the US. House prices have fallen an average of 10% across the country and new home sales figures are due this afternoon. The Federal Reserve is due to make an interest rate decision this week with the base rate currently sitting at 0.25%.

Euro – European Markets

The Euro remains under pressure, a result of deepening economic downturn and the expectations of further interest rate cuts from the ECB. This morning however, risk aversion and market focus on the UK has seen the Euro make gains on the Pound, Dollar and Asia Pacific currencies.

Friday’s PMI figures showed the Eurozone economy continued to contract in January 2009, notably in the manufacturing and services sector. Phillips, Europe’s largest electronics producer is to cut 6000 jobs after a downturn in sales figures as a result of the credit crunch. The Euro has suffered record lows against the Yen recently and Credit Suisse has predicted the Swiss franc will gain 2.6% this quarter on the Euro. Figures in Poland show retail sales rose by 5.6% in December and unemployment has risen to 9.5%. There is no major data from the Eurozone today with German IFO business climate and Eurozone current account released tomorrow.

Other Currencies - Highlights

The Bank of Japan announced a deterioration of economic conditions in its meeting last week, with expectation of worse to come. Foreign trade data declined in quarter 4 of 2008 and the Bank has forecast a -2.6% contraction for the Japanese economy in 2009. Yet despite this, the Yen has continued to strengthen, reaching record highs against the Euro last week and sitting just under all time highs against the US Dollar. The strength of the Yen is exacerbating impacts of the downturn for exporters and creating a growing disparity between the economic situation in Japan and the value of the currency internationally. Retail sales and industrial production figures for Japan are due later in the week.

Although interest rates are a funny old thing, sometimes good for us and sometimes not so, they play a vital and pivotal part of the UK’s financial stability and are used to try to control the economy.

According to Wikipedia :

“An interest rate is the price a borrower pays for the use of money they do not own, and the return a lender receives for deferring the use of funds, by lending it to the borrower. Interest rates are normally expressed as a percentage rate over the period of one year.

Interest rates targets are also a vital tool of monetary policy and are used to control variables like investment, inflation, and unemployment.”

History of Interest Rates

In the 17th Century, The Bank Of England was set up by William of Orange and proceeded to loan the Government of the time around one million pounds to help rebuild the country and help to finance wars and missions overseas. The early days of Interest Rates rarely saw any movement, with rates moving only twice in the 18th Century, moving lower and then increasing towards the end.

1840 saw the beginning of the rise and fall of interest rates, with the Bank of England moving rates many times from 1847 to the current day. The rates were changed by many things, war, economy and even the collapse of London bank, Overend, Gurney and Company caused the rates to rise a massive four times in May, finally hitting 10%, only the second occasion this had happened up until that point.

In 1890 the Bank of England had to bail out a major bank in Barings, which helped to avoid the collapse of the whole banking system due to heavy losses overseas, mainly in Argentina. Fast forward around 100 years and the interest rates hit their highest every peak to date, reaching a massive 17 percent, which introduced the early governing months of the Tory party, led by Margret Thatcher.

Despite a large rise in 1992 to avoid Black Wednesday, which was soon reversed, interest rates have generally fallen, which brings us all the way to 2009 where interest rates reached their lowest every point in their 300 year history, touching 1.5% as the UK faced recession.

What do Interest Rates mean to you?

As a general rule, if you do not own a home or have much in savings, they may not mean much.

When the interest rates are low, borrowers on tracker mortgages generally pay less per month for their mortgage as long as the lender passes the cut on, but your savings earn less in terms of interest. The opposite occurs when the rates are high, as borrowers on tracker mortgages generally pay more, but you earn more on your savings. Of course, borrowers on a fixed rate mortgage will be unaffected in terms of mortgage repayments.

Loans tend to be unaffected as a general rule, as most borrowers with a personal loan will be on a fixed rate. If recent events are any indication then rates for new customers are also unlikely to fall.

History has shown that the Bank of England has successfully controlled the finance of the UK by raising and lowering interest rates when needed, if this were not the case then we would be in serious trouble now. Although the latest cut does indicate significant problems ahead, taking this kind of action will help millions of people survive the next couple of years, and as for the question will they rise again, yes, of course they will, it’s only a matter of time … and more interest rate history will be made.

Refreshing. Totally refreshing! For the past few days it has been non stop discussion regarding the loss of jobs in the UK due to the recession increasing its cold grip on the country, with Barclays announcing further redundancies, Land of Leather on the verge of calling it a day and major car factories declaring shorter working weeks and months.

But yesterday, one of the leading supermarkets Waitrose announce they will not be making redundancies, quite the opposite, they will be creating another 4,000 jobs this year, with the creation of 22 new stores nationwide.

Waitrose Managing Director, Mark Price, commented:

“I’m delighted to announce the biggest period of growth in the history of Waitrose. There is a real weight of evidence that businesses that continue to invest during tough economic times fare much better when the economy begins to recover. Our new shops will help ensure Waitrose is in the best shape possible coming out of the recession.

“I am always overwhelmed by the number of letters I receive asking for a Waitrose in new areas, demonstrating there is a strong demand for quality food.

“We are delighted that 4,000 new employees will be joining our business and look forward to welcoming them to share in the unique benefits of the John Lewis Partnership.”

In a recession we always think that every business will struggle, many will close down and unemployment will rapidly rise, possibly out of short term control. But sometimes businesses and companies can use a recession to grow, increase their portfolio and gain new business. The vicious circle of recession means this normally only happens due to others misfortune, but there are many businesses that can take advantage and grow and my bold predication is that we might see much more of this happening throughout the year.

During a recession the ratio of new jobs to jobs lost will never be a balanced affair and I am sure more people will lose their jobs this year than there are jobs created, but if a few businesses decided now is the time to expand, maybe, just maybe we can start to see the light at the end of this very long and depressing tunnel.

Thanks Waitrose, may many more follow your lead!

Safe haven currencies have been the major benefactors overnight as markets were battered with more evidence of economic downturn. Sterling has declined against the US Dollar, Euro and Yen this morning as the BCC figures describe the state of the UK economy as ‘frightening’.

Pound Sterling - UK Markets

The Pound has sunk to 1.46 against the US Dollar and is over 1% lower against the Yen as British Chamber of Commerce and BRC statistics provide evidence of the deepening economic downturn.

Monthly snapshots released yesterday showed retail sales down 3.3% from last December and widespread contraction across the service and manufacturing sectors. Home sales, factory orders, manufacturing sales and job prospects have all reached record lows and the BCC warned of ‘frightening deterioration’ across all economic sectors. Growth forecasts have been revised to -2.4% in 2009. The collapse in confidence has led to predictions GDP will contract 1.5% in Q4 and even exporters are not benefitting from the low Pound as global downturn forces foreign markets to contract. With the cost of borrowing already at record lows the MPC is running out of conventional stimulus policies and may move to more unorthodox methods to stimulate the economy. Balance of trade figures released this morning show a -£4.5 billion deficit which could provide a source of weakness for the Pound throughout the day.

US Dollar - US Markets

The US Dollar strengthened overnight to 0.68 versus the Pound and 0.75 versus the Euro as risk aversion dominated markets.

News of the deepening global recession has created a negative trend in equity markets leading investors to sell off the higher yielding currencies in favour of the traditional safe havens. A Bloomberg Survey has announced the US economy is likely to contract 1.5% in 2009 with the Federal Reserve not able to raise interest rates until 2010. Trade balance and consumer confidence figures out today could hamper market confidence even further.

Euro - European Markets

The Euro reached a one month low against the US Dollar and Yen overnight as the Standard and Poor’s announced it may cut Spain’s credit rating. Against the Pound, the Euro is up to 0.90 as the Pound has been knocked by the ‘frightening’ state of the UK economy.

Falling inflation rates and negative economic data in the Eurozone is showing the Euro is not as well positioned to weather the recession as initially thought. Market perception at present is that the ECB has dragged its feet in providing interest rate cuts and will have to act now to stimulate the Eurozone economy. Weakening of the Euro/Sterling rate is to some extent a correction of the overheated selling we saw during the Christmas period. Industrial production figures are due for the Eurozone tomorrow with the ECB decision on Thursday.

Other Currencies - Highlights

The Aussie Dollar fell to two week lows against the US yesterday as investors sought safe haven currencies. Negative figures from the US economy are pushing down growth forecasts and commodity prices internationally which has a strong bearing on the strength of the Aussie and the South African Rand. The Kiwi also declined against the Pound and US Dollar, affected by increased risk aversion. Unemployment figures are due in Australia on Thursday.

Sterling has appreciated against the Euro following the release of negative economic data from the Eurozone this morning. The US, Australian and Kiwi Dollars are trading near recent highs as interest rate cuts are predicted from the Bank of England and ECB this month.

Pound Sterling - UK Markets

Sterling has started the New Year with a bullish run on both the Euro and Japanese Yen. On New Years day the Pound traded at a record low of 1.02 against the Euro but has since bounced back to the 1.09 region as data suggests economic downturn is starting to gain momentum in the Eurozone.

In an interview with the Financial Times this morning, Chancellor Darling has described the UK financial situation as ‘difficult’ and conceded he may have to revise previous economic forecasts. Yesterday Debenhams, Next and Marks & Spencer released negative sales figures with M&S to cut over 1000 jobs as the tough retail climate impacts on retailers. UK car sales also fell 11.3% in 2008. The January interest rate decision from the Bank of England is due tomorrow and markets are pricing in expectations of a 0.5% to 1% reduction in the base rate. Producer price index and industrial production figures are due on Friday.

US Dollar - US Markets

The Dollar is currently benefiting against the Pound and Euro, trading at 0.67 and 0.73 respectively as further negative economic data is eroding support for the currencies.

Data has been light in the US over the New Year period and the Dollar has climbed to mid-December ranges against the Pound and Euro. Oil has risen to $50 a barrel amid supply disruptions in Russia and the Ukraine. New mortgage applications and employment figures are released in the US today and are likely to induce further Dollar volatility.

Euro - European Markets

The Euro has slid back from recent record highs to trade at 0.91 this morning against the Pound and 1.35 against the US Dollar.

The Eurozone producer price index released this morning has declined 1.9% for November, the largest drop since records began in 1990. Inflation has also fallen to a 6 year low of 1.6% ensuring deflation is now a central concern of the ECB. Pre-emptive interest rate cuts have been mooted my members of the governing council, contributing to some Euro weakness. German unemployment has also risen for the first time in 3 years and the export driven German economy has now entered recession. Consumer confidence and GDP figures are due for the Eurozone tomorrow.

Other Currencies - Highlights

Australasian currencies have benefited overnight as markets are pricing in expectations of further interest rate cuts in the UK and Eurozone. The Australian Dollar remained in high trading ranges against Sterling and the Kiwi Dollar was also strong. The Bank of Taiwan has cut interest rates this morning by 0.5 to 1.5% and Australian trade balance figures are due tomorrow.