Sterling fell to a 4 ½ month low against the euro as poor UK retail sales data raised concerns over a fragile economy and credit rating agency Moody’s warned that slower growth combined with spending cuts could make it harder for the government to rein in the deficit. Retail sales fell by 0.8% on the month against an expectation of a 0.6% fall. The reversal of fortune this week has been staggering – early in the week, analysts were talking about interest rate hikes in May following high inflation but now the indicators seem to be showing a lack of demand in the economy which will see growth struggle.

In the euro zone, the euro gained against sterling on a weak UK outlook but itself slipped briefly against the US dollar following a downgrade of the Portuguese credit rating by rating agency Standard & Poor’s. The euro did recover as European leaders agreed on Thursday to increase the financial rescue fund to the full €440bn by June. The EU Summit continues today, so call in now for a live exchange rate.

In the USA, the US dollar came under pressure yesterday as a global equities recovery saw risk appetite return and investors look to higher yielding currencies. US dollar weakness was most profound against the Australian dollar, where the US dollar is hovering around lows last seen in 1982. We have the final GDP figures for the 4th quarter released later, so censure you protect yourself by speaking to a trader sooner rather than later.

Elsewhere, Japanese markets have settled somewhat as progress seems to be being made on the crippled nuclear power plant. Against the US dollar, investors seem to be wary of the threat of further selling intervention by the central bank and as such the yen seems to have stabilised around the Y80/$1 mark.

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