Sterling / Euro

In volatile markets on Friday, the pound lost ground to the euro in later trade, slipping back 0.35% after the FTSE 100 closed at a three-month low.

• There was considerable movement between the pair during the day with the UK currency initially reacting positively to a rise in producer prices.
• Data revealed a sharp increase in producer price inflation in January, moving to 2.0%, well above the forecast level of 0.7%.
• This follows a steep increase in consumer price inflation, which the Bank of England will comment on in their quarterly report on Wednesday.
• The pound soon relinquished gains though, slipping back in accordance with global stocks, which slumped to three month lows on Friday on fears that the crisis in the eurozone would spread.
• Despite euro weakness, the UK economy is still very sluggish. The political uncertainty will leave sterling vulnerable in the run-up to the election and the BoE still appears a long way from wrapping up QE entirely.
• The pound is continuing to be sold this morning, with the price dipping to a three-week low, back beneath 1.14.

Sterling / US Dollar

The pound maintained its downward movement against the greenback on Friday, losing a full cent after positive employment numbers from the US.

• Sterling fell to an eight-and-a-half month low against the dollar after data revealed that the overall rate of unemployment in the US fell by 0.3% to 9.7%.
• The markets had anticipated no change to the rate, so the positive news provided strong support for the greenback, which rallied across the board.
• The US currency was also in favour on Friday as concerns over euro zone sovereign debt problems boosted the appeal of the greenback as a safe-haven currency.
• Worries about debt problems in the euro zone have extended beyond Greece to Portugal and Spain, hitting riskier assets, with sterling falling in tandem with the euro against the dollar.
• An increase in British Producer Prices data could not offset the strong news from the states and the continued worries of the global economy as the pound fell steadily to close at 1.5642.
• With little data out today, Friday's sentiment has remained with the pound continuing to be sold this morning, currently down a further 0.2%.

Euro / US Dollar

The single currency fell back another half cent against the US dollar on Friday in the wake of strong jobless numbers from the US.

• A 0.3% fall in the overall unemployment rate in the US added support to the broadly stronger US currency.
• There has been a general surge in the dollar due to a spike in risk aversion which has weighed on equities and commodities.
• Over the weekend, the G7 finance ministers gave reassurances about debt-strapped Greece as European policymakers sought to convince jittery markets that they have things under control.
• In response the euro has capped its losses, bringing the price marginally above 1.37 though risk appetite remains subdued.

Rest of the World

Australian Dollar

The pound gave back all the gains it had posted on Thursday, losing over two cents against the aussie on Friday following positive data from the US.

• Risk appetite was back on the table briefly after the release of the US non-farm payroll figures.
• A drop in the overall rate of unemployment came as a surprise to the markets and supported hopes for the global recovery.
• However, after the aussie's brief rally, the pair have steadied again this morning with the concerns over eurozone debt very much back at the focus of the markets.
• With little positive news from the UK, the pound has dipped slightly, currently down 0.3%, though the aussie's gains are likely to be capped as market players dub down their risk activities.

New Zealand Dollar

The sterling / kiwi pairing reacted similarly to the aussie, with the pound losing significant ground to the New Zealand currency on Friday.

• The pound has slowed its downward movement this morning, though the price has dipped below 2.26.
• There is continued nervousness about the eurozone, which is dragging down risk, and a meeting of the G7 finance ministers offered support for Greece but no specific action.
• Local investors are looking to a speech by Prime Minister John Key on Tuesday, at the start of the new parliamentary session, for details of this year's economic policy plans.