The Pound has been pulling all sorts of party tricks! Having done a great limbo impression, Sterling has bent over backwards to reach new lows this week, not once but three times against the Euro.

While talks of parity are a little premature, the downward run on Sterling shows no sign of abating with the Pound sitting at 1.11 this morning. To add insult to injury, markets deemed Britain had a greater credit risk than McDonald's to the average investor. What is the world coming to?!

As the global economic downturn gathers momentum, new lows and new challenges have emerged this week. The Pound has hit a record low against the Euro, plunging over three consecutive days to trade at 1.11 this morning. Nations around the world are continually revising growth forecasts with even India and China beginning to feel the impact of the downturn.

In the UK this week the Pound has been absolutely battered by the weight of negative economic data. The National Institute of Social and Economic Research reported that the UK economy contracted 1% in the 3 months to November and figures released showed declines of 2% and 1.8% respectively in the manufacturing and industrial production sectors.

The CBI Industrial Trends survey confirmed the bleak state of the economy and analysts are predicting this recession is shaping up to be comparable with the big 3 since the end of WW2.

All the positive effects of low value Sterling for exporters and inflation are being negated by market conditions as export markets shrivel up and the OECD has described the business climate as 'severe'. In the absence of major data from the US and Eurozone to divert market attention, the Pound was shunned by investors and sunk to record lows against the Euro while remaining in the vicinity of 1.47-1.5 versus the Dollar.

In the US overnight, Senate failure to reach a consensus on the $14 billion bail out for the US car industry sent Wall Street and equity markets around the world plummeting in a return to risk aversion.

That aside, the week has been relatively uneventful for the US Dollar with RBS describing the tone of markets as one of 'consolidation'. Last 'non-farm Friday' showed US unemployment had risen to its highest rate in 34 years and today markets will be interested in retail and consumer price indices.

The Federal Reserve Interest rate decision is also due next week so watch for Dollar volatility surrounding the announcement. While the Dollar has been strong on the back of risk aversion recently, as a degree of confidence returns - or as markets become desensitized to bad news, take your pick, we may see some weakening in Dollar rates.

The Euro has perhaps been the big winner of the week, gaining 5 cents on the Dollar to break through the 1.3 level. The Euro has also reached record highs against the Pound with talk of parity being achieved as further base rate cuts are expected in the UK. We are seeing much smaller ranges from the European currencies with Zloty only moving between 0.226 and 0.221 against the Pound and the Czech Koruna staying in the vicinity of 0.033.

The Euro begins its second decade on January 1st and many economists are watching with interest the true 'litmus test' of the Euro as deflation appears in the Eurozone. The ECB has less scope than other Central Banks in cutting interest rates and we could see the Euro weaken significantly when the extent of economic contraction in the Eurozone emerges.

Industrial production figures out this morning show Eurozone production has fallen 1.2% on the month for October and 5.3% on the year. The ECB has also revised GDP forecasts down to 0-1% for 2009, from 0.6-1.8%.

At present we are seeing Governments and Central Banks go into overdrive attempting to mitigate the effects of recession for their economies. The impact of figures that speak for themselves has sent the Pound plunging this week, although some analysts are predicting Sterling is approaching the trough of the economic cycle. Low market confidence and falling inflation rates support the case for further rate cuts and this too is a factor in the low value of Sterling.

While underlying trends remain negative, we are now seeing far less volatility than we have witnessed in recent weeks. The time is right for those looking to transfer Euros, or any other currency for that matter, back into Sterling. Speak to your dealer about the best option for your currency requirements.

Have a good weekend!

Nigek Hodges of Currency Solutions

By Nigel Hodges of Currency Solutions

Tonight We're Gonna Party like it's 1999.

First uttered by Prince in 1982, but perhaps more poignant for a Lehman's employee, HBOS employee, Gordon Brown, take your pick...as we have experienced one of the most tumultuous weeks the market has seen in decades.

Richard Fuld had possibly the most chronic case of Monday-itis in history, made all the more enjoyable I'm sure by thousands defacing his portrait outside the office. And flying in the face of the recession was Damien Hirst, laughing himself all the way to the (hopefully not Lehman's) bank with his art netting record prices at Sotheby's.

As you will know by know, Monday 15 September delivered the news that Lehman Brothers, the fourth largest securities and investment bank in the US, filed for bankruptcy.

Following the collapse of negotiations with the Korean Development Bank, Barclays and Bank of America to ensure liquidity, Lehman's filed for bankruptcy, setting into motion a chain of seismic events that have shaken financial markets to their core.

Following Lehman's, casualties of the credit crunch began to mount as banks showed their hand, revealing the extent of their bluff.

Merrill Lynch was sold to Bank of America for $50 Billion, insurance giant AIG was bailed out by the Federal Reserve and Lehman assets were bought by Barclays for £2 billion.

The honeymoon period expected after the Federal Reserve intervention to bail out Freddie Mac and Fannie Mae was abruptly cut short. Stocks and shares plummeted, the US Dollar sunk and over a matter of days $3 trillion was wiped off the market.

In the UK, a $22 billion pound merger between Lloyds TSB and HBOS, the biggest in British history, was hurried through in an attempt to inject confidence into British markets.

Currency fluctuations have mirrored market trends towards instability this week with gains to be made for hawk-eyed traders. Up to the minute information is crucial in this volatile environment, speak to your dealer for the latest news.

The response from Governments and Central Banks around the world has been immediate and hawkish. The Federal Reserve has co-ordinated moves to inject $247 billion worth of emergency funds to facilitate inter-bank lending and improve shallow liquidity.

Most recently, a US government plan to create a federally sponsored entity to house "toxic debts" of financial institutions sent share prices soaring in the US and UK as a wave of optimism swept markets.

The plan will be subject to congressional approval, but alongside the temporary ban on short selling, contributed to a rally in shares that provided the largest gain in 6 years for AIG.

The London FTSE 100 index gained over 300 points in early trading this morning and the Pound gained against the dollar overnight.

This overwhelming combination of news has led to a vociferous outpouring of superlatives from commentators and claims of a "tectonic" shift in financial landscapes.

Although market conditions have been characterised by responsive moves and flighty investors, Sterling has been showing resilience and the Euro has also retained its composure.

Polish Zloty and Czech rates are stronger with most major currencies unpredictable at the moment, waiting on the fall out of Sterling and Dollar.

Economic data from the UK has been muted this week in relation to the fireworks on Wall Street but is insightful nevertheless. MPC minutes reveal members voted 8-1 to keep interest rate cuts on hold and The Bank of England announced the extension of its Special Liquidity Scheme.

The FSA has placed a ban on short selling until 16 January 2009 and British retail data released yesterday continues to confound expectations, showing the number of sales is up 1.2% for August and 3.3% for the year.

Commodities have gained in value as nervous investors favour tangible assets. Oil is up to $98 a barrel after hovering around $92 all week and gold posted a 10% rise on Wednesday, one of its largest gains ever.

Perhaps we will see a few more Hirst's on the market, not a bad idea considering the figures - you could practically buy a bank for that these days!

Have a good weekend.