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Daily Currency Report

Overview

Sterling started the week well, opening strongly against a waning US dollar still under pressure. In the UK market caution set in ahead of the first budget from the new government, designed to tackle Britain's record deficit of £155 billion, with markets braced for the toughest package of tax increases and spending cuts in a generation. In other news, markets anticipate a packed calendar from within the euro zone, with IFO sentiment surveys from Germany, Current Account Balance figures and Consumer Confidence figures due for release. As well as this Existing Home Sales and the beginning of the Federal Reserve meeting in the US will leave investors with lots to focus on.

Sterling

Sterling opened strongly against a pressured US dollar. There was no data released in the UK, and after a positive start sterling was slowly pegged back during the course of the day as market focus started to drift towards the new government's emergency budget.

US Dollar

The greenback is still under pressure following comments by the Chinese Government over the weekend. Officials stated that they were planning on being more flexible and loosen the yuan's peg against the US dollar. Markets reacted by dumping the US dollar, which saw the currency hit five week lows against sterling and a one month low against the euro.

Euro

Eurozone data was thin on the ground, with trade balance figures from Italy being the only release, which came in at a deficit of €1.416 billion compared to a deficit of €1.042 billion, and had little impact on the euro. A statement from Jean-Claude Trichet, the President of the European Central Bank, did allow some level of support for the single currency though as he pressed for a 'fiscal federation' that would broaden the powers of the commission and also recommended that an separate body should be formed within the commission to monitor budgets of member states, and have the ability to impose sanctions early if fiscal policies are not maintained within stricter guidelines.

Yen

Japan's government announced their fiscal strategy and pledged to balance their books in 10 years, overhaul the tax system and restrict bond sales as a plan of action to contain the world's largest public debt.

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