The euro is sitting at a 5 week low against the US dollar this morning as the single currency continues to be plagued by uncertainty surrounding ECB strategy. Larger than expected credit write downs at Bank of America yesterday reignited fears that the worst is not over in the financial crisis putting an end to the recent 6 week rally in global equities.

Pound Sterling - UK Markets

Sterling has declined against the US dollar, finding support just above the 1.45 level, as a wave of risk aversion swept markets overnight. This morning the pound is largely unchanged against the euro, trading in the vicinity of 1.12 and is down over 1% on the New Zealand dollar.

Inflation figures out this morning show consumer prices falling in the UK. The core consumer price index for March is running at 2.9%, taking the annual rate of inflation to 1.7%. The retail price index is running at 0% for March, taking the annual rate to -0.4% largely due to falling house prices and lower interest rates. The lower cost of energy is also fuelling the downward trend and this is helping to bring inflation inline with the government target of 2%. This morning Tesco has reported a GBP3 billion profit, a 10% rise since the last financial year. We can expect some volatility for the pound during the rest of the week with Bank of England minutes, the annual budget, ILO unemployment rate and continuing jobless claims out tomorrow.

US Dollar - US Markets

The US dollar strengthened overnight, trading in the vicinity of 0.77 versus the euro and 0.68 versus the pound as credit losses at Bank of America prompted fresh fears over the stability of the financial sector. This morning the higher yielding currencies have trimmed losses against the dollar with the pound, Aussie and Kiwi dollars all staging minor rallies.

Bank of America’s corporate earnings released yesterday show that despite a USD4.2 billion first quarter profit, the bank will be forced to set aside over USD13 billion to cover toxic loans. This ends up close to a break even performance and the news rattled markets, renewing fears that the worst of the recession may not be over. Bank of America shares lost 24% while Citigroup shares declined more than 16%. The news also affected global equities with the S&P closing down 4.3% and the Dow Jones losing 3.6%. The losses also put an end to the 6 week rally in global markets and economists predict markets are entering a phase of short term consolidation with credit losses expected to get worse before they get better. In the US today Treasury Secretary Geithner is to make a speech and the Washington Post Consumer Confidence survey is due.

Euro – European Markets

The Euro continues to fall against the dollar, reaching a five week low of 1.28 during Monday’s US session and remains bearish this morning. Against the pound the euro staged a slight recovery yesterday and the euro has also declined against the Australian and New Zealand dollars.

Statistics released in Germany this morning show the producer price index fell -0.7% in March, taking the annual rate to -0.5%. The public debate between ECB members over the best course of action for the Eurozone continues to pressure the single currency in the absence of any positive financial data. Uncertainty over the pending ‘unconventional measures’ from the ECB is making investors nervous although a reduction in the base rate by 0.25% seems likely. Results of the German ZEW economic sentiment survey are due out this morning.

Other Currencies - Highlights

Asian equities fell across the board yesterday, triggered by renewed fears over the state of the financial sector in the US. The yen ended three days of gains against the euro and dollar although recent signs of improvement in the Chinese economy have acted as a buffer to drastic selling. Also this morning the Indian Central Bank has reduced the repo rate, at which the bank makes short term loans into the economy, by quarter of a percentage point to 4.75%. This is the sixth time since October the rate has been reduced and the Indian Central Bank expects growth to slow to 6% this year. The Canadian Central Bank is to make an interest rate decision today.

The CBI has predicted the UK economy will contract by 3.9% in 2009, more than twice the amount predicted by Alistair Darling late last year. The euro has reached a one month low against the dollar amid concerns that the ECB is not doing enough to safeguard the ailing eurozone economy and US leading indicators released today are expected to show signs of recession easing in the US.

Pound Sterling - UK Markets

Sterling has lost ground against its major currency partners this morning, having declined over 1% against the US dollar and Japanese yen as the looming budget puts pressure on the pound.

The CBI have predicted the UK economy will contract 3.9% in 2009 with a total economic contraction of 5.1% by the end of the recession. This is more than twice the decline predicted by Alistair Darling in his pre-budget report and Wednesday’s budget is expected to downgrade economic forecasts while highlighting increased government borrowing. However recent economic news shows the pace of decline is slowing in both the US and UK and the CBI expects the economy to return to positive growth by the second half of 2010. While the pound remains weak internationally, this could aid recovery through more competitive pricing and there is a reported 1.8% increase in house prices in March. There is no major data released in the UK today.

US Dollar - US Markets

The dollar is stronger this morning, reaching a one month high against the euro and gaining over 1% on the pound after a better than expected performance from Citigroup on Friday boosted Wall Street and global equities. Citigroup reported a profit of USD1.6 billion, its first in nearly 2 years and this improved market sentiment and added to the view that the US economy may be taking its ‘first steps’ towards recovery.

Today Bank of America, Google and Yahoo are to release corporate earning figures and this could lead to a further revival of risk appetite. The leading indicators index is also out today and this is expected to show an easing of recession in the US as Federal cash injections and lower interest rates are work to boost spending and investment. Consumer confidence figures and jobless claims are due out later in the week.

Euro – European Markets

The euro has declined against the US dollar and yen this morning but improved against the pound ahead of the UK budget due on Wednesday. Dropping below 1.3 versus the US dollar, the euro has reached a one month low amid concerns the ECB is not doing enough to protect the eurozone economy. The euro has also hit a 3-week low against the yen.

As the US and UK economy are starting to show signs of the recession easing, the decline appears to be deepening across the eurozone and this, along with mounting concerns over the effectiveness of the ECB is placing the euro under pressure. Comments from ECB members Axel Weber and President Trichet last week also increased speculation of further interest rate cuts. There is no major data released in the eurozone today with Germany’s producer price index and ZEW economic sentiment survey out tomorrow.

Other Currencies - Highlights

Currency exchange rates for the Australian and New Zealand dollars continue to shadow investor appetite for risk. After reaching a 6-month high against the euro on Friday with news of Citigroup profits, the Aussie and Kiwi dollars have slumped this morning with rumours of splits in the ECB leading investors to favour the safe haven currencies. Figures out this morning show Australian producer prices fell 0.4% in the first quarter of 2009 and are running at a 4% increase on the year.

The yen continues to strengthen despite declining export figures and the deteriorating Japanese economy. The Bank of Japan is expected to slash economic forecasts this week as consumer demand collapses and the Japanese economy is expected to contract by 4.2% in 2010. Japan’s leading economic indicators and Canadian foreign investment figures are released today.

Better than expected jobless data in the US yesterday bolstered investor hopes of a tentative stability in the world’s largest economy. While economic data continues to be mixed, there is growing evidence the rate of decline is slowing in the US and to a lesser extent, the UK. This morning sterling has fallen from its 3 month high versus the US dollar but continues to gain against the euro.

Pound Sterling - UK Markets

The pound declined against the US dollar yesterday as better than expected jobless data in the US boosted hopes of a tentative recovery. This fuelled demand for the dollar at the expense of the pound and euro. Sterling has fallen away from 3 month highs against the dollar to trade in the region of 1.48 this morning but continues to gain on the euro, trading at the interbank rate of 1.13 early this morning.

David Miles, chief economist at Morgan Stanley in the UK has added to the positive chorus, noting that recession may ease as quantitative easing and other government initiatives begin to trickle down to the wider economy. Miles is set to replace David Blanchflower on the MPC in June. However, several large question marks remain over the UK economy and sterling exchange rates remain subject to international appetite for risk. The Council of Mortgage Lenders has cited negative equity as a factor in the low property market turnover and sentiment towards sterling is likely to remain muted in the lead up to next weeks budget. There is no data out in the UK today.

US Dollar - US Markets

The US dollar strengthened broadly overnight as better than expected jobless data boosted hopes that the pace of recession may be easing. The Philly Fed manufacturing survey also showed the rate of decline is slowing although both housing starts and new building permits continued to fall on their way to record levels in March.

This news provided fuel for a dollar rally against its international currency partners as it boosted hopes we are beginning to see the ‘green shoots’ of recovery in the US. This morning search engine Google has announced strong profits for the first quarter of 2009, rising to USD 1.42 billion which is significantly better than expected given the downturn in advertising spending as a result of recession. JP Morgan announced better than expected profits yesterday, sending the FTSE 100 to close 2% higher and Citigroup is to release company earnings later in the day. This, combined with a speech by Ben Bernanke could have a positive impact on Wall Street and international markets.

Euro – European Markets
The euro is broadly weaker this morning following Trichet’s comments that the ECB must do everything possible to restore corporate confidence, increasing speculation of further rate cuts and quantitative easing in the Eurozone. The euro continues to decline against the pound but has found support at the 1.3 level versus the US dollar.

This morning Sony Ericsson has announced 2,000 job cuts in an attempt to save EUR400 million after an extremely difficult first quarter. This follows Nokia’s announcement yesterday of a 90% profit fall in the first quarter of 2009 and both companies expect to face challenging markets throughout 2009. The EMU trade balance is released this morning with the producer price index for Germany due early next week.

Other Currencies - Highlights

News that China’s growth rate has fallen to 6.1% prompted a return to safe haven currencies and this sent the Australian and New Zealand dollars lower against their international currency partners overnight. The Aussie and Kiwi dollars both sunk to 2 month lows against the Japanese yen. Australian growth and budget forecasts due in May are now expected to be significantly worse than predicted and New Zealand inflation rates have fallen to 3% as consumer demand wanes in the midst of global recession. This is prompting speculation that the RBNZ may leave interest rates unchanged again this month. The Australian import and export price indices are out this morning.

Switzerland’s biggest bank, UBS, has said it will seek to cut costs by shedding 8,700 jobs by 2010. The news came as the bank announced it had lost about 2bn Swiss francs in the first three months of 2009. UBS has been one of the biggest banks hit by exposure to the sub-prime loans crisis in the US and ensuing turmoil. The Swiss bank is also being probed by the US authorities over alleged fraud and tax evasion involving US citizens.

Pound Sterling - UK Markets

Interest from home-buyers is starting to gain “real momentum”, although sales remain low, the Royal Institution of Chartered Surveyors has said. While new enquiries in the housing market increased for the fifth consecutive month, surveyors are still selling fewer than 10 homes on average each over the last three months. Nonetheless, there the poll found increased optimism that sales would pick up during the year, but it remained tough for first-time buyers.

With little fresh news from elsewhere following the Easter holiday, currency markets have been taking their cue from equities. With London FTSE index falling 0.3 percent in early trade, the pound has fallen against the US dollar this morning with investors once again returning to the perceived safety of the US currency. The pound will currently buy between 1.4804-1.4908USD.

US Dollar - US Markets

Retail sales in the US unexpectedly fell last month as rising unemployment forced consumers to ease back. In a report released yesterday, the Commerce Department said that the US retail had seen a 1.1% decrease in March. Car dealers, electronics stores and restaurants led the decline.

However, with Federal Reserve Chairman Ben Bernanke echoing Barack Obama’s comments by stating that the “sharp decline” in the US economy is slowing, the dollar has been enlivened by safe haven flows against the pound and the euro. While there is still unease ahead of earnings from the likes of Citigroup and JP Morgan Chase, the euro fell around 0.6% against the greenback and is now currently trading at an interbank rate of between 1.3265-1.3286USD.

Euro – European Markets

Following the release of the German March wholesale price index report, the euro showed mixed trading against its major counterparts. While the euro eased against the dollar and the franc, it gained slightly against the pound.

The euro is currently worth around 0.8907-0.8912 against the pound.

Other Currencies - Highlights

China’s economy is showing some signs of recovery from the global financial crisis, the country’s Prime Minister Wen Jiabao has said. China has already implemented a 4tn yuan stimulus package to boost economic activity. Despite its problems, China’s economy - the third biggest in the world - is forecast to grow by at least 5% this year, in stark contrast to many major global economies that are shrinking.

Poland’s government is to ask the International Monetary Fund for a USD20bn credit injection to help tackle the economic crisis. Finance Minister Jacek Rostowski said it would increase bank reserves and make Poland “immune to the virus of the crisis and speculative attacks”. Rostowski said the move would increase state bank reserves by about a third.

US President Barack Obama has arrived at Downing Street for a meeting with Prime Minister Gordon Brown ahead of the G20 summit. World leaders are gathering in London to discuss ways to resolve the worst financial crisis since the 1930s.

However, rifts have already begun to emerge, with France threatening to walk away from talks if its demands for stricter financial regulation are not met. The summit takes place amid tight security, with the police warning of “unprecedented” levels of protest.

Pound Sterling - UK Markets

According to the latest Experian Footfall UK National Index, consumers continued to desert the High Street in March, with shopper numbers falling by 1.7% across the UK. Wales and the South West were the worst hit regions, with shopper numbers down 7.13%. Only the North East, South East and East Midlands recorded a rise.

The UK purchasing managers index for the manufacturing sector improved significantly in March from a record low in February, data from economics research group Markit Economics has shown.

The manufacturing PMI lifted to 39.1 in March from 34.9 in February. Analysts had been expecting a marginal rise to 35.0. While the figure is still historically low, it suggests belief that a recovery by early 2010 is possible.

Meanwhile, Chancellor Alistair Darling has gone back on plans to increase business rates by 5% from 1 April. Mr Darling said the rise was linked to the Retail Prices Index last year, but RPI inflation had now fallen to zero. The Chancellor said businesses would face only a 2% rise this year and the remaining 3% would be smoothed out over the following two years.

US Dollar - US Markets

US house prices fell by a record 19% in January compared with a year earlier, according to a closely-watched index. The Standard & Poor’s/Case-Shiller Home Price index records prices in 20 of the largest cities in the US.

The index also showed a month-on-month fall as prices fell 2.8% in January compared with December. Earlier this month, figures showed home construction in February rose by a quarter year-on-year, raising hopes the US housing market may be bottoming out.

Euro – European Markets

Retail sales in Germany unexpectedly fell 0.2% on the month in February from January, according to seasonally adjusted figures released by the Federal Statistics Office. The data is yet another signal that household demand in Europe’s largest economy remains depressed, leaving little hopes for a recovery in the near future.

Further bad news from Spain, as car registrations fell 39% on the year in March, Spanish car manufacturers’ association Anfac has said. In a release, Anfac said 76,503 cars were registered in March, down from 124,702 a year earlier. Car registrations fell by 49% on the year in February and by 42% in January. Not even rapidly decelerating consumer price inflation and falling mortgage payments as a result of European Central Bank rate cuts have been able to stimulate Spanish consumption.

Other Currencies - Highlights

Business confidence among major manufacturers in Japan is at a record low, according to a wide-ranging survey by the Japanese central bank. The quarterly Tankan survey of more than 10,000 companies is closely watched in Japan as a key indicator of the health of the country’s economy. Results released by the Bank of Japan show that business confidence among major manufacturers tumbled dramatically, hitting the lowest level ever recorded.

Elsewhere, business confidence in Poland’s industrial sector held up better than expected in March but remained in sharply negative territory, as new orders remained near record lows while job shedding continued. A survey of 300 industrial companies prepared by Markit showed Polish manufacturing PMI rose to 42.2 in March, from 40.8 in February - its third straight monthly increase and considerably better than the 40.9 figure that had been forecast.

The head of the International Monetary Fund has stressed the need for unity among world leaders at the G20 meeting in London next week. “It is absolutely necessary for leaders to find agreement,” said IMF managing director Dominique Strauss-Kahn. The UN has also called for urgent action at the G20 to prevent the financial crisis developing into a “catastrophe for human development”.

Pound Sterling - UK Markets

Mortgage approvals for house purchases in Britain rose more than expected in February, according to official figures from the Bank of England. There were 38,000 approvals in the month, up from 32,000 in January – the highest number since May 2008.

There was also the biggest net repayment of consumer debt since records began in April 1993. Consumers repaid £245m worth of credit more than they took out in February, having taken on an extra £165m of credit in January.

However, mortgage approval data hasn’t stopped the pound from tumbling today, after a report by the property industry group Hometrack showed that the average price for a home in England and Wales plummeted by a record 10.3 percent on year in March. March’s annual fall was the biggest yet in Hometrack’s monthly survey of estate agents and surveyors, which started in 2000 and has persistently reported lower price falls than official government data.

US Dollar - US Markets

Supported by lower oil prices, the US dollar soared in early training to a 12-day high against its UK, European and Swiss counterparts as concerns about the global economy prompted investors to seek the safety of the world’s most liquid currency.

However, the dollar has since slumped back against the yen amid fresh concerns about struggling US carmakers General Motors and Chrysler. The fall follows comments from a rescue task force that said their plans for recovery are “not viable.”

The euro, however, remains weaker against the greenback as investors anticipate European Central Bank policy-makers will reduce interest rates when they meet on Thursday.

Euro – European Markets

The Irish Republic’s economy has suffered its largest contraction in recent decades. The Irish economy shrank by 7.5% in the last three months of 2008 compared with the same period a year earlier, a report by the Central Statistics Office has shown.

The construction industry, which has faced a housing market slump, suffered a 24% fall in output, the biggest fall on record. In the whole of 2008 the economy shrank by 2.3%, the first decline since 1983. Ireland has experienced a sharp downturn, becoming the first eurozone country to fall into recession in 2008.

The economic crisis in Spain has taken a new turn on Monday after the country became the first in the euro zone to report disinflation on the heels of a weekend takeover of a Spanish savings bank by the government. Preliminary data showed that harmonised consumer prices fell 0.1% in March on an annual basis, against a 0.7% rise in February, according to the Instituto Nacional de Estatdistica. It was the first decline in consumer prices since the INE started tracking figures in 1961. Analysts had been expecting a rise in prices of around 0.4%.

Other Currencies - Highlights

Official figures show that Japan’s manufacturing output has fallen for the fifth consecutive month. Industrial production dropped 9.4% in February, but rebounded from January’s record 10.2% plunge, Japan’s Ministry of Economy, Trade and Industry said.

Retail sales growth in the UK almost stalled in February as consumers cut back on spending, figures from the Office of National Statistics show. Sales growth slowed to 0.4% last month, the smallest increase since 1995, after a 3.6% rise in January. Analysts had expected retail sales growth to slow to 2.5%.

Pound Sterling - UK Markets

The UK Treasury has failed to sell all its government bonds in an auction for the first time since 2002. The Debt Management Office has said that the Treasury wanted to sell £1.75bn of 40-year bonds, but investors only bid for £1.63bn of the debt. Analysts said this may reflect concern over the state of the public finances as government borrowing surges.

Meanwhile, the UK February Retail Sales Report has seen the Pound decline against the US Dollar.

US Dollar - US Markets

In a quiet day for US data, Treasury Secretary Timothy Geithner has defended the Dollar as the world reserve currency, a day after China called for it to be replaced. Pointing to the ongoing global financial crisis, China’s Central Bank governor, Zhou Xiaochuan called for a new reserve currency run by the International Monetary Fund.

Euro – European Markets

Following yesterday’s report that showed dire figures about German business confidence, German consumer confidence has declined for the first time in seven months. Workers are increasingly worried about keeping their jobs amid the worst recession since World War II, GfK AG’s confidence index for April shown.

According to the Dutch Central Bureau for Statistics, the Dutch economy shrank 0.6% on the year in the fourth quarter. In line with estimates, the Dutch economy in the fourth quarter contracted 1% from the previous quarter, according to the second estimate, which is a downward revision of 0.1 percentage point compared with the first estimate.

Spanish new housing starts fell 42% last year as a decade-long housing boom went bust, data from the country’s Housing Ministry has shown. Housing starts fell to 360,044 last year, from 615,976 in 2007. The resulting decline in housing investment pushed the wider Spanish economy into recession at the end of last year.

A report from Statistics Denmark has said the Danish seasonally adjusted jobless rate climbed to 2.5% last month from 2.3% in January. The figure, which is in line with forecasts, shows that Denmark’s unemployment rate rose in February for the fifth straight month. Denmark’s jobless rate has climbed steadily since September, when it was 1.7%.

Italian business confidence continued to fall in March, staying at its lowest level since records began in 1991, with recent bankruptcies painting a bleak outlook for the economy and exports, research centre ISAE has said.

ISAE said March business confidence in the Eurozone’s third-largest economy fell to 59.8 from 63.2 in February, well below expectations. A survey of 12 economists polled by Dow Jones Newswires forecast Italian business confidence at 62.7. In the report Thursday, ISAE said sentiment in the consumer goods sector fell to 72.1 from 76.8, while investment goods sentiment slid to 56.5 from 58.7.

Following these somewhat bleak reports, the Euro weakened against its major counterparts, before bouncing back slightly against the Swiss Franc.

Other Currencies - Highlights

The Shekel-US Dollar exchange rate rose 1% in morning inter-bank trading and the Shekel-Euro exchange rate rose 1.68% after the Bank of Israel announced yesterday evening that it would continue to buy US Dollars.

Gordon Brown will repeat calls for greater fiscal stimulus and more financial regulation on a visit to the US as part of his pre-G20 summit tour. The prime minister’s strategies for reviving the economy appear to have been broadly backed by US President Barack Obama. Brown is touring three continents ahead of next week’s G20 summit, calling on governments to back plans for possible further stimulus action.

Pound Sterling - UK Markets

Answering questions from MPs at a Treasury committee meeting, Mervyn King, the governor of the Bank of England, has warned against further significant government spending to stimulate the economy. Given the high levels of UK debt as a result of recent stimulus packages, Mr King questioned the wisdom of increasing debt by spending more.

Following yesterday’s surprise jump in British consumer price inflation to an annual rate of 3.2 percent, Sterling fell against the US Dollar and Euro, giving back some of the previous session’s gains as investors reconsidered the unexpected rise in inflation.

US Dollar - US Markets

Barack Obama has told Americans he sees signs of economic recovery, but has urged them to be patient and look beyond their “short-term interests”. The US president said his draft budget would build a stronger economy which would mean America did not face a repeat crisis in 10 or 20 years. Obama’s $3.6tn budget faces its first tests in Congress this week.

Orders for US durable goods are predicted to have fallen in February for a seventh straight month as the global slump in business spending deepened, economists said before the release of data from the US Commerce Department today.

Bookings for goods meant to last several years decreased 2.5%, according to the median forecast of economists surveyed by Bloomberg News, after dropping 4.5 percent in January. A report on new-home sales, also from the Commerce Department, is anticipated to show sales of new houses declined to the lowest level on record.

Euro – European Markets

Germany’s Munich-based Ifo Institute for Economic Research released a German business confidence survey earlier today. The business confidence index has dropped to a historical low of 82.1 in March from 82.6 in February. The Euro has now gained slightly against its major counterparts.

According to research centre ISAE, Italian consumer confidence fell more-than-expected in March as households’ view of the overall economy and employment opportunities slipped. ISAE said the seasonally adjusted consumer confidence index for Europe’s fourth-largest economy dropped to 99.8 from 104 in February, returning to levels last seen at the end of 2008.

ISAE said consumers’ expectations of their overall economic situation fell sharply to 62.1 from 70.4, while views on rising unemployment increased to 115 from 97. Views on their personal situation dropped to 118.3 from 120.7.

Other Currencies - Highlights

Japan’s exports saw a record plunge in February, falling by nearly half compared with a year earlier, according to the country’s finance ministry. In line with forecasts, exports fell 49.4% year-on-year to 3.526tn yen ($36bn; £24.6bn). This data comes after figures for January showed year-on-year exports nearly halved that month as well.

The South African Rand was softer against the US Dollar in early trade today, moving back into the 9.50s, as some nervousness about global stock markets returned to the markets.

Union leaders from the UK and overseas have put forward a global five-point plan they want G20 leaders to adopt as a way of tackling the economic crisis. The plan includes job creation, some bank nationalisation, tackling wage deflation, and climate change action. The G20 meeting, which will be held in London in early April, brings together leaders from industrial and emerging market countries that make up 85% of the world economy.

Pound Sterling - UK Markets

The CBI has called on the chancellor to use the Budget for ‘confidence building’ measures to boost jobs, investment and competitiveness. The UK’s cumulative deficit for the fiscal year so far is £75.2bn, raising the chance annual government borrowing will exceed its own £77bn forecast. CBI deputy chief John Cridland said the public finance outlook was “alarming”. Last month the CBI predicted that the government will have to borrow £100bn more than anticipated during the recession.

US Dollar - US Markets

Details have been released of a $500bn US Treasury plan to encourage private investors to buy up toxic debts. The ‘Public-Private Investment Programme’ will purchase the troubled mortgages and securities that have been at the root of the credit crisis from banks.
It will initially provide financing for $500bn of toxic assets, with the potential to expand up to $1tn. The plan is due to be formally launched later today.

The US Treasury’s plan to help banks offload their soured loans has promoted broad Dollar-selling and the Pound has hit a one-month high against the greenback. The Dollar is also down further against the Euro.

Euro – European Markets

European Central Bank President Jean-Claude Trichet has said his bank can cut interest rates further but that its deposit rate is already at a very low level. Trichet added it could also use more non-conventional measures to help the troubled banking system. “As regards the future rate of our main refinancing operations, presently at 1.5 percent, I said clearly that we could decrease it again,” Trichet said in an interview with the Wall Street Journal

Other Currencies - Highlights

The New Zealand Dollar has spiked up to new multi-month highs of against the Japanese Yen and the US Dollar during Monday’s early trading. Against the Euro, the Kiwi is now trading near a new multi-week high.

The Australian Dollar too has staged a strong rally against its major opponents on Monday morning. The Aussie jumped to a new multi-month high against the Yen and a 10-week high against its US equivalent. At the time of writing, the Aussie is also advancing towards a multi-day high against the Euro.

The International Monetary Fund has predicted that the recession will last longer in the UK than in any of the world’s other major economies.

The IMF has warned that the UK will be the only member of the G7 group of leading industrial countries that will continue to see its economy shrink in 2010. The IMF said the UK economy will shrink 3.8% this year and 0.2% in 2010. By contrast, IMF predictions see the G7 nations will see their economies decline 3.2% on average in 2009, before growing 0.2% next year.

Pound Sterling - UK Markets

Official figures due out later today are expected to show that the number of people in the UK who are unemployed has risen to more than two million for the first time since 1997. Analysts predict that the data for November to January will show that the number of people out of work rose by more than 150,000 during the period. The TUC had claimed earlier this week that there are now 10 jobseekers for every vacancy advertised in UK jobcentres.

The thirteenth consecutive monthly increase in claims was significantly larger than the market consensus estimate for a rise of 87,500 in a Dow Jones Newswires survey of economists last week. Other data released by the Office for National Statistics showed that the number of job vacancies slumped to its lowest level since comparable records began in 2001, while the number of redundancies soared to its highest level since that series started in 1995.

Proposals aimed at overhauling the rules governing UK banking and stopping a repeat of the financial crisis are to be unveiled by the City watchdog. Financial Services Authority chairman Lord Turner will put forward new rules on lending and seek to restrict the ability of banks to take excessive risks. The plans will aim to stop banks lending too much during boom times, which may include limits on home loans. Lord Turner will also recommend that banks publish more and clearer information in their accounts about the risks they are running. A proposal to form a new pan-European body will also be mooted, to set standards for other regulators to follow.

US Dollar - US Markets

Federal Reserve policy makes are set to debate today what to do about the deepening US recession. Officials will determine how to provide further stimulus to the economy, from purchasing more mortgage bonds to buying Treasury securities. They’ll also keep the benchmark interest rate as low as zero percent, according to all 71 forecasters in a Bloomberg News survey.

At least three of the top Fed officials want to buy Treasuries or target the supply of money, while Chairman Ben Bernanke has favoured reviving specific credit markets. The Federal Reserve aren’t alone in mulling this problem; central banks worldwide are grappling with how to set policy when rates are near zero; the Bank of England started buying government debt this month, and the Bank of Japan said today it would increase its purchases of sovereign bonds.

Elsewhere, data released late on Tuesday showed unexpected strength in the housing market, with a 22.2 percent surge in U.S. housing starts in February. These figures eased fears about the worst-case scenario of another deflationary depression.

Euro – European Markets

European stocks have opened firmer today, as renewed confidence and positive sentiment outweighs the dismal global economic backdrop hanging over the markets. The Euro its highest level in over six weeks against the Pound, with investors trying to position themselves following the UK jobs data, as well as minutes from the Bank of England’s last policy meeting.

Buoyed by improved investor confidence after surprisingly upbeat German data, the Euro has been holding close to a one-month high against the US Dollar.

Other Currencies - Highlights

Retail sales in Switzerland increased 1.2% in January after rising at an annual pace of 3.6% in the previous month. Ahead of the release, the Swiss Franc ticked down against the Euro and the US Dollar, but advanced against its other major counterparts.

The breakdown of the report showed that demands for electronic goods rose 9.8%, while sales of healthcare products increased 6.5%. However, discretionary spending on personal goods plunged another 12.1% after falling 20.0% in the previous month, and was followed by an 8.1% drop in cultural goods.