Sterling / Euro

The pound slumped to a one week low against the single currency yesterday after unexpectedly weak production figures renewed fears of negative economic growth.

• In the early session British manufacturing output numbers showed a 0.9% decline in January, the sharpest monthly fall since last August and disappointing forecasts of a modest rise.
• Data from the industrial sector also fell below expectations adding to recent concerns about Britain's fiscal and political outlook.
• The figures now raise doubts about whether the UK economy can add to the growth it enjoyed in the final quarter of last year.
• Sterling did find some support in later trading though following BoE policymaker Adam Posen's comment that sterling's recent weakness did not suggest the markets had lost confidence in Britain. The pound eventually closed just over half a cent lower.
• In trading this morning the UK currency seems to have pared its losses, currently holding steady though still below 1.10.

Sterling / US Dollar

Having neared an 11-month low in early trading, the pound did par its losses against the dollar to close just fractionally lower.

• Sterling opened on a negative note following particularly discouraging production figures from both the industrial and manufacturing sectors.
• In the wake of the data, the pound was dropped by the markets unsurprisingly as the prospects for economic growth in the opening quarter of 2010 diminished.
• It is tricky at this juncture to see a substantial pick up for the pound, and we in fact expect further declines for the currency given Britain's uncertain economic prospects and worries on the political front.
• In later trade though, some positive comments from a Bank of England policymaker, and worrying debt figures from the US enabled sterling to rebound.
• The rating agency Standard & Poor's has commented on the risk that US debt could pose for the dollar, and his morning the pound has ended its downward movement, but remains trading below 1.50.

Euro / US Dollar

The euro enjoyed a slight rally against the US dollar yesterday, climbing up half a cent following some positive comments concerning Greece.

• Former European Commission President Romano Prodi said the worst of Greece's financial crisis is over and other European nations won't follow in its path.
• The comments come after Greece has outlined a string of austerity measures to rein in its deficit.
• The euro also rose as output at French factories and utilities advanced 1.6% in January after a revised 0.2% fall in December.
• The gains for the single currency may be more as a result of market players using the comments and the data as an excuse to book profits though, with overall sentiment toward the peripheral countries little changed.
• The markets are quiet this morning and the pair is holding around the overnight closing price.

Rest of the World

Australian Dollar

In early trading, sterling slipped to a fresh 25-year low against the aussie but did par its losses in the afternoon session to close just 0.3% lower.

• Disappointing data from the UK put the pound into a broad downward spiral, taking it down to 1.6253.
• The Australian dollar was also well supported as investors priced in positive news from the labour market, with expectations that the economy had added jobs for a sixth straight month, and spurring expectations for an interest-rate increase.
• However this morning, data showing a rather subdued rise of just 400 jobs in Australian employment for February has knocked the aussie slightly.
• Renewed concerns that a tighter Chinese monetary policy may hamper growth and slow demand for Australian imports has also put pressure on the aussie this morning.
• Currently the pair is trading around 1.6350, unmoved from the overnight close.

New Zealand Dollar

Having fallen quite sharply in the early session, the pound was able to recover its losses following the statement from the Reserve Bank of New Zealand.

• In early trade the riskier kiwi was on top following a report which showed Chinese exports rose the most in three years, renewing investor demand for higher-yielding assets.
• At their policy meeting in the evening though, the RBNZ opted to keep rates on hold at 2.50% and indicated that interest rates could peak at a lower level than previously thought.
• They added that a subdued economy and tighter financial conditions would limit how far and how fast rates could be raised.
• The remarks have taken the kiwi broadly lower, and the pound is currently up nearly a cent on the day with the price now moving above 2.14.