Australian dollar undermined by falling equities

The Australian dollar retraced recent gains against the pound yesterday, after falls in global equities dented investor risk appetite and demand for high yielding currencies. The share market falls were largely driven by the banking sector, with fears the situation may get worse before it gets better. This has effectively doused growing optimism that the global economy was bottoming out of its steep decline. Investors will focus on a raft of UK data in the next few days, starting with inflation figures today. But the central focus this week will be the UK government’s annual budget tomorrow. The government is already running a massive deficit so any plans to further loosen fiscal policy may be poorly received by markets.