It seems like sterling has taken cues from Freddie Flintoff recently, as sparks of brilliance in its performance have been undermined by general concerns about health. And like the cricketer, while the UK economy has shown promise recently, whether it is 'match fit' for recovery remains to be seen. The MPC seems to doubt it and have opted to expand with QE, though modest improvements in manufacturing and services sent the pound to 2009 highs against the US dollar.

The unexpected news that the UK could be on the road to recovery boosted sterling exchange rates this week as confidence drove risk appetite. The US dollar was sent to the lower end of ranges and markets have been occupied with a glut of important economic data, including interest rate decisions from the Bank of England and European Central Bank.

In the UK, manufacturing, services and the property sector all reported unexpectedly healthy figures this week, with production expanding and house prices rising for the first time since recession began. The confidence this engendered in the pound drove sterling exchange rates to 1.69 against the US dollar and 1.18 against the euro, as the pound broke out of recent ranges amid market optimism.

The Bank of England has also decided to leave interest rates on hold at 0.5% for the fifth consecutive month, while pumping another GPB50 billion into the economy. The MPC is now utilizing the full extent of the funds approved by the Treasury to stimulate the UK economy and sterling exchange rates dipped slightly following the decision.

The US dollar has remained in low trading ranges this week due to the rally in market confidence. Following positive GDP figures last Friday where the economy contracted by 1%, the US economy has continued to show modest signs of improvement. This week construction and manufacturing sectors have reported minor gains. Personal consumption figures were down more than expected, although this failed to dent risk appetite as positive news in Europe and Asia kept the US dollar confined to low ranges.

Euro exchange rates climbed over 1% against the US dollar this week, rising to around 1.44 amid the upturn in global growth. The European producer price index rose 0.3% this month, however retail sales fell by -0.2% and France's largest bank Societe Generale, reported a 52% profit drop in the second quarter. The ECB also voted to leave interest rates on hold at 1% with President Trichet confident that the rate is 'appropriate' for continued growth in 2010.

In Eastern Europe the Czech central bank trimmed the base rate to 1.25%, with economists noting the cut is a 'safety measure' to ensure further easing prevent the appreciation of the koruna. The Czech economy is on track for the worst contraction in more than a decade. The Polish government decided to drop euro adoption plans for 2012 in the interests of greater economic stability. While Poland has avoided recession thus far, the zloty remains under pressure from falling revenue and a higher budget deficit.

So while we have seen a return to extreme currency volatility, this time it has been in favour of the pound and euro against the US dollar. Sterling rose to its highest level in 10 months against the US dollar, while the Australian and Kiwi currencies also touched on 12-month highs amid the improved market confidence.

If you need to transfer currency, taking advantage of these spikes in the currency market can make a significant difference to the amount you end up with. To ensure you capitalise on market volatility, speak to your broker about your currency requirements and they will call you at the best time to trade. To open an obligation free account, visit us online at www.currencysolutions.co.uk.

Have a good weekend.

By Nigel Hodges of Currency Solutions

This week, that began with as much gloomy news as we've come to expect, has ended with a show of real British bull dog spirit as sterling has gone from strength to strength in the markets.

Since Monday when snow blanketed the City and reminded us all to have a bit of fun the Pound has been trading at much firmer levels, maintaining support above 1.4 on the Dollar and 1.10 on the Euro. In these grim economic times that constitutes a very good week indeed!

The MPC decision to reduce the base rate to 1% has been interpreted as a piece of decisive policy and led the Pound to gain on the Euro.

The ECB decided to keep rates unchanged at 2% and with figures showing the Eurozone deep in recession territory, the ECB is beginning to suffer for its complacency as reflected in the current Euro-Sterling exchange rate.

However, the UK does remain deep in the quagmire. G Brown even had a slip up over the D-word in Parliament yesterday. Plunging inflation, thousands of job losses and ever-worsening growth predictions remain very firmly in the economic picture and the IMF expect the UK to be one of the countries worst by the de... I mean recession.

Baugur has become the latest high profile victim of the credit crunch after filing for bankruptcy protection yesterday and the NISER predict a 3.8% drop in consumer spending and an 8.8% decline in business investment in the UK in 2009.

So far, so depressing.

What does seem to have changed is that markets are becoming somewhat de-sensitized to bad news. In the UK at least, recession has become an accepted state and markets are tending to focussing on more ambivalent results.

The Dollar has conceded ground to the Pound in a week that has been relatively light for US data. The private sector shed 522,000 jobs in January and non-farm payrolls are likely to show a rise in the overall unemployment rate.

The Federal Reserve rescue package remains in the Senate and we could see some Dollar strength and return of risk appetite when it gains Congressional approval. This week President Obama's 'Buy America' clause came under fire from foreign leaders as a thinly veiled form of protectionism. Obama responded that he wants to avoid a 'trade war' when global trade is necessary to financial recovery.

The Eurozone appears to be moving into the eye of the storm as figures show it is sinking deeper and deeper into recession.

Retail sales have contracted 1.6% in the year to December and unemployment has risen rapidly in Spain, by 199,000 people or 6% in January. Spanish unemployment sits at 14.4%, significantly higher than other EU nations.

The Czech Central Bank has cut rates to 1.75% and other Eastern European currencies have declined significantly against the Euro since December. The Czech Koruna has dropped 7.1%, the Hungarian Forint by 11.2% and the Polish Zloty by 13.3%.

It is expected that the Eurozone will continue to weaken in coming months as it moves into the trough of the downturn.

As a global economic crisis that began in the US and spread to the UK and Eurozone, the consensus is that recovery will follow a similar logic and any upturn in Sterling is expected to trail the US by 1-2 quarters.

General market sentiment is that the Eurozone has done too little, too late with regard to decisive economic policy. While the Federal Reserve and Bank of England have undertaken significant monetary easing alongside rate reductions, the ECB continues to sit on its hands and this is lowering market confidence in the Euro.

While market shocks provided a large degree of the initial volatility, we are now seeing the downturn spread as it trickles into trade, tourism and contracts export markets. For many of the world's peripheral economies this is the beginning of a long slow downturn.

For Eastern European currencies seeking to join the Euro this may delay the accession process.

Stability is a key prerequisite and the current downturn is making it impossible to find. Poland is also the largest of the Eastern European economies, whether this enhances or diminishes the effects remains to be seen.

In the coming weeks, economic data is likely to get worse from the Eurozone, with little policy activity to remedy it. It seems the dovetailing towards parity between the euro and sterling that we saw in the New Year has been left in the distance.

At the same time, we are just moving into the period where MPC activity over recent months could start to make its mark on the UK economy. While it is too early to speak of recovery just yet and volatility is certainly not confined to the past, the general feeling is that markets have come to their senses and the extreme trading ranges we have seen may be abandoned in favour of smaller ranges.

Call it learning to live with recession.

So have a good weekend and speak to your dealer if this has caused you even more confusion!

Footnote - It could be a case of fools rushing in.... but I have agreed to do a charity skydive this month for Global Angels, an international children's charity. Your support would be greatly appreciated!

http://www.globalangels.org/fundraiser/CurrencySolutions/

Ok endorsement over. But don't forget to donate!

This week began with a highly international flavour as Chinese New Year, Australia Day and an Indian National Holiday all coincided on Monday, making trading thin on the ground.

However, rather than exacerbate woes for the Pound, Sterling staged a significant rally spurred on by a minor recovery in confidence in the banking sector. Give me an S!

After Barclays announced they would still be making a post write-down profit in 2008 and would not need a bail out, thank you very much, shares in the bank staged a whopping 75% recovery.

Not quite tall buildings in a single bound but highly impressive nonetheless and indicative of what a little confidence can do.... Give me a T!

Now if we could just get the cheerleading squad into the HQ of RBS we could be all right.

The Monday morning rally was followed by 3 magical days of gains in global equity markets, giving the Pound and beleaguered currencies everywhere the chance to gain some lost ground.

Extreme risk aversion faded, allowing Sterling to gain a foothold on a much stronger trading platform, above the 1.4 level and up from the 23 year lows we saw against the US Dollar last week.

At close on Thursday the Pound was trading at 1.43 versus the US Dollar and 1.09 against the Euro.

However, government debt, currently running at 10% of GDP, is likely to continue to be a thorn in the side of Sterling, capping its potential in future.

While negative domestic data has continued to flow, markets have been routinely discounting bad news and this week the focus has been on macro-economic events.

The World Economic Forum began its meeting in Davos, Switzerland and the IMF issued its revised growth forecasts for 2009.

The IMF expects the UK to be hardest hit by recession with a 2.8% contraction expected in 2009. The German economy is also expected to contract by 2.5%, Japan by 2.6% and the US by 1.6%.

The IMF also cited the 'pernicious feedback loop' linking financial markets and the wider economy, reiterating that recovery in the financial sector is key to wider economic stability.

Redundancies have also been big news and a separate report from the International Labour Organization this morning put world wide job losses at 50 million. Corus has announced 2,500 redundancies in the UK while Royal Dutch Shell, Europe's largest oil company posted its first quarterly loss in 10 years on the back of lower oil prices and reduced demand due for the commodity.

In the US, the House of Representatives passed an $820 billion rescue package, which now faces approval in the Senate. Worryingly, the bill received not an iota of Republican support in the House potentially compromising its viability in the Senate. The FOMC left base rates unchanged as expected and reiterated focus on purchasing assets to aid the recovery of credit markets. The Washington Post consumer confidence survey reported record lows.

The Eurozone remains an enigma.

We know the situation is getting worse, latest figures confirm it. Yet despite this, consumer and business confidence is up with Sweden joining Germany and France in the rising index this week.

On the downside, German unemployment has risen, up to 7.8% with 56,000 jobs lost in December as global contraction takes its toll on the export led German economy.

Volatility has reduced between the European currencies and the Pound. Against the Polish Zloty, Sterling fluctuated between 4.70 and 4.63 this week, greatly reduced from before the New Year. Reports suggest Poland may have slipped into a 'technical recession' this week as Eastern Europe is beginning to be affected by a downturn in trading partners. The IMF also predicted a 0.4% slump across Eastern Europe.

In other markets the Aussie and Kiwi Dollars benefited from equity market rallies and firmer commodity prices early in the week. The RBNZ decision on Thursday to cut rates by 1.5% to the lowest level in history sent the Kiwi to its lowest level since 2002 against the US Dollar.

The Yen has weakened from recent highs with the return of risk appetite. Economic conditions continue to deteriorate in Japan, at odds with the strength of the Yen.

And finally there are still great opportunities to be had when it comes to spot deals. This week was a perfect example as Sterling sunk to 1.36, its lowest level in 23 years against the Dollar. If you need to exchange currency in the future contact your dealer to set up a limit order so you know these spikes will not be missed. Lock them in on a forward contract and you'll be laughing in years to come!

Have a good weekend.

Nigel Hodges of Currency Solutions

The US Dollar really needs no introductions. It is the international heavyweight among currencies, the world's foremost reserve and legal tender of the largest economy and military power on earth.

Commonly referred to as the greenback or buck, the Dollar is used by 10 countries and territories and is pegged by 22 countries throughout South America, the Caribbean and the Middle East.

Economics

The US Dollar has dominated global currency markets since the US first emerged as a superpower following WW2. With Britain and European nations heavily indebted and economically weak, the Bretton-Woods agreement set the scene for the Dollar to become the world's reserve currency.

Despite having surrendered some ground with the emergence of the Euro, the strength of the Dollar remains undisputed internationally and the Dollar serves as a magnet for investors across the globe. As the default currency for the purchase of oil and gold, the world's two most valuable commodities, the Dollar benefits from a safe haven status in addition to its value as a reserve. When risk aversion and economic uncertainty plague markets and investors flock to tangible assets the Dollar, along with the Yen and Swiss Franc, are the major beneficiaries. This allows the US government to run large budget and trade deficits whilst retaining its core strength and the Dollar to remain stable, even thrive, amidst financial turmoil.

Influences

In terms of influences on the Dollar, its central status in the global economy means it really is a law unto itself. Whilst affected by global events; commodity prices, OPEC decisions, equity markets and domestic conditions, often the ground the Dollar loses in confidence it will make up for in safe haven status. This ensures the currency is insulated against major declines in the global economy.

That said, the recent credit crisis has been the most major challenge to the health of the Dollar since the Great Depression and is worth a brief digression to illustrate the centrality of the US Dollar to the global economy.

Global Credit Crisis

The origins of the current financial crisis are widely attributed to the sub-prime mortgage market in the US. Since the collapse of this market, a series of shocks and aftershocks have been felt throughout the world and fundamentally altered the financial landscape.

Source: www.newsvote.bbc.co.uk

Following a decade of booming economic growth in the US, high market confidence, disposable income and easy credit created a burgeoning sub-prime mortgage market in which risky debts were offered to people with poor credit histories on a huge scale. However, during the 2 years between 2004 and 2006 interest rates rose rapidly, from 1% to 5.35%, forcing many of these sub-prime lenders to default on repayments. Although by that stage, the complex nature of debt re-packaging and fluidity of international credit markets meant that the 'toxic' debts had spread throughout the financial system.

In April 2007 New Century Financial, a company which specialises in sub-prime mortgages, filed for bankruptcy. Having on-sold debts to banks and other financial institutions, the collapse in the sub-prime market begins to take effect for US banks. By July, Bear Stearns had to warn customers the money they invested may not be safe.

Under normal conditions banks survive by lending heavily to one another. The Bear Stearns scenario essentially froze interbank lending as banks refused to lend in favour of shoring up liquidity for themselves. Central Banks including the Federal Reserve, ECB, Bank of Canada and Bank of Japan lent large amounts to banks in an attempt to improve market liquidity.

By September 2007, the crisis had spread around the world and Northern Rock in the UK experienced its biggest 'run on the bank' in more than a century. By the end of 2007, the world's strongest economies faced a major downturn as the lack of available credit brought with it economic uncertainty, low market confidence, unemployment and repossessions.

Panic Mode

Throughout 2008, as a consequence of the bad debts in the sub-prime market, major banks were forced into billion dollar write downs. International governments persisted with billion dollar bail outs of lending giants such as Northern Rock in the UK and the Federal mortgage guarantors Freddie Mac and Fannie Mae in the US but in the absence of interbank lending to provide much needed liquidity, there was nowhere for banks to go but down.

On the 15 September 2008, CEO Richard Fuld declared Lehman Brothers, the fourth largest securities firm in the US bankrupt, triggering a wave of panic selling which wiped billions from equity markets internationally. Interbank lending froze once again and central banks made billions available in overnight loans to prevent full scale collapse of credit markets. Even the practice of short-selling, usually a legitimate market activity, was banned as markets were deemed so volatile the effects could be potentially devastating. Panic and fear characterised markets as nervous investors speculated on who would be the next to fall. Risk aversion and investor flight to tangible assets such as oil and gold buffered the US Dollar against the worst of the crisis, but shares in Wall Street were hit heavily.

Source: www.newsvote.bbc.co.uk

In the aftermath of Lehman's Central Banks, led by the Federal Reserve, announced unprecedented handouts to underwrite interbank lending and buy preferential shares while flooding markets with capital to improve wafer thin liquidity. A series of partial nationalisations of major banks occurred throughout the US, UK and Europe, with the irony of the failed free-market ideology escaping no one. The US government made $700 billion available in the rescue package, with £250 billion pounds in the UK.

Source: www.newsvote.bbc.co.uk

Just days after the rescue packages were announced, 6 central banks announced a co-ordinated interest rate cut of 50 basis points in an attempt to breathe life into the ailing global economy. Markets responded well, posting enormous rallies, yet have persisted with bearish trends as the data in recent weeks indicates recession is likely to persist into the second quarter of 2009. The MSCI World Index of global equities has declined 41% thus far in 2008.

Future

Despite being at the epicentre of the downturn, the US Dollar has emerged relatively unscathed from the crisis due to its unique and inherent strength as the world's reserve and a safe haven currency.

As risk aversion favours tangible assets and strong stable currencies, the Dollar has also benefited from its status as the default tender for the purchase of oil and gold, commodities that are unlikely to fall out of favour anytime soon. In addition, the repatriation of foreign investment is further supporting the Dollar, at the expense of countries on the periphery of the global economy. This week, Hungary has secured a $21 billion loan for IMF assistance and the Federal Reserve has pledged $120 billion dollars to South Korea, Mexico, Brazil and Singapore.

Quarter 3 GDP is released for US this week and is likely to show the country in recession as a result of the sub-prime crisis. Yet while the Dollar was quick to fall in the early stages of the credit crunch, the very structure of the international system is designed to ensure the place of the Dollar as a superpower.