Euro hits highest level against US dollar this year

The euro hit its highest level against the US dollar since New Year's eve today, as improved risk appetite swept the market. In particular, strong demand for US debt after a series of successful US Treasuries auctions aided the single currency’s rise.

In addition, healthy rises on European equity markets also weakened demand for the safe-haven of the dollar as investor demand for riskier assets increased.

Kiwi stregthens on back of budget

The New Zealand dollar rose broadly yesterday, after the government budget caused ratings agency Standard and Poor’s to revise its outlook on New Zealand's credit rating, from "negative" back to "stable".

• This was a big reprieve for the kiwi, and was largely due the government’s decision to scrap tax cuts in a broader debt reduction plan.
  
• The government also stated that it did not expect the economy to return to growth until the last quarter of this year.

Aussie rebounds against sterling

The Australian dollar rebounded against sterling yesterday, after the disclosure of Britain's financial regulators’ “stress tests” on banks caused renewed jitters in the markets over the health of the UK financial sector.

• The results had many in the market reassessing their views about the UK's banking sector’s ability to cope with a sustained economic downturn.
  
• Sterling was also weighed down by retail sales data, which revealed a bigger than expected fall in sales for April. Retailers are expecting further falls next month.
  
• This is perhaps a reminder that, despite optimism from some areas that the UK economy may be bottoming out, there is almost certainly going to be further weak economic data over the next few months.
  
• At the moment optimism versus economic reality is likely to perpetuate further volatility.

Euro finishes up against the US dollar

The euro strengthened against the US dollar yesterday by 1.19 cents (0.86%), closing the day at $1.3943.

• In early trading yesterday the euro strengthened against the greenback, as investors bought back into the riskier single currency following recent falls.
  
• Appetite for the riskier euro was also bolstered after the release of better-than-expected Core Durable Goods data in the US. It came in at 0.8%, a considerable improvement on the -2.7% registered last month, and way ahead of the -0.4% expected. Elsewhere, US Unemployment Claims figures also improved global risk sentiment after it came in at 623k for May, well ahead of the 628k forecasted, and the 636k reading the previous month.
  
• However, weaker-than-forecast US New Home Sales data capped the euro’s gains to some extent after it came in at 352k this month, well below the 363k expected, but slightly up on the 351k recorded in April.
  
• In trading so far today the euro has risen back above the psychological $1.40 level, as appetite for safe-haven currencies like the greenback continues to subside.
  
• There are no major announcements due in the eurozone today, whilst at 13.30 BST in the US Preliminary GDP (QoQ) figures are out.

Pound finishes slightly down vs. greenback

The pound weakened slightly against the US dollar by 0.1 cents (0.06%) yesterday, to finish the day at $1.5943.

• Sterling weakened against the greenback in early trading yesterday, after Bank of England Monetary Policy Committee member David Blanchflower was quoted as saying investors should not take the pound’s recent rally as proof the global recession has bottomed out: “My worry is that there can be many false dawns and we shouldn’t just assume that everything is over.”
  
• Adding to the downward pressure on the pound mid-morning was the release of weaker-than-forecast CBI figures, which came in at -17 for May, much lower than the -10 analysts expected, and a considerable fall from the 3 registered last month, although this figure may have been skewed due to a late Easter.
  
• However, the pound’s losses were capped to some extent following the release of better-than-expected Core Durable Goods and Unemployment Claims data in the US. The former came in at 0.8%, a considerable improvement on the -2.7% registered last month, whilst the latter registered at 623k, well ahead of the 628k analysts had been forecasting.
  
• However, surprisingly weak US New Home Sales figures halted sterling’s fight back mid-afternoon, after it came in at 352k this month, well below the 363k expected. Nevertheless, the pound only finished slightly down on the day.
  
• In trading so far today the pound has strengthened against the dollar, rising back above the $1.60 level as positive sentiment about the UK’s chances of economic recovery continues.
  
• There are no major announcements due in the UK today, however in the US Preliminary GDP (QoQ) figures are due at 13.30 BST.

Sterling finishes down against the euro

The pound weakened by 1.02 cents (0.88%) against the euro yesterday, closing the day at 1.1435.

• In early trading yesterday sterling weakened against the euro, as traders booked profits following significant gains in recent days. Comments from outgoing Bank of England Monetary Policy Committee member David Blanchflower also weighed on the pound early on, after he was quoted as saying the world should not assume the worst of the global economic crisis is over.
  
• Worse-than-expected CBI Realised Sales data out mid-morning also contributed to the downward pressure on sterling. May’s reading of -17 was much lower than the -10 analysts had been expecting, and a significant fall from the 3 registered last month.
  
• In trading so far today sterling has strengthened against the single currency, as investors start to look ahead to next week’s important interest rate decisions in the eurozone and UK. Some analysts now believe the European Central Bank to be behind-the-curve in terms of their monetary policy so, depending what they announce next week, the pound could gain ground against the euro over the next few weeks.
  
• There are no major announcements due in the eurozone or the UK today.

Kiwi loses ground against the aussie and sterling yesterday

The New Zealand dollar lost ground against the aussie and sterling yesterday, after dairy giant Fonterra lowered its forecast payout due to weak prices.

• Overnight the kiwi also fell sharply after the New Zealand government’s budget announcement.
  
• Unveiling its budget for the coming year, the government said it would post its biggest budget deficit in 25 years and expects to remain in the red for up to 10 years, which would see debt more than doubling.
  
• The government will raise borrowing and move to rein in spending, including scrapping tax cuts, in a budget aimed at supporting the recession hit economy but staving off a possible credit rating downgrade.
  
• The New Zealand dollar fell sharply immediately after the budget, but has recovered much of the lost ground this morning as investors speculate that the measures may be enough to prevent a ratings downgrade.

Aussie finishes down against the pound

The Australian dollar edged to near four week lows against sterling yesterday, as mixed data out of the US helped curb investor risk appetite.

• Sterling also received added support as pessimism over the UK economy and financial sector finally seems to have started to recede.
  
• Despite there being no assurances that the UK economy has bottomed out, it does appear that investors are now taking a more optimistic view.
  
• Investors are also being drawn to sterling as markets are perceiving that the pound’s current levels are making UK assets cheap.

Euro weakens against the greenback

The euro weakened against the US dollar by 1.6 cents (1.14%) yesterday, finishing the day at $1.3824.

• In early trading yesterday, the dollar strengthened against the single currency following comments by European Central Bank member Erkki Liikanen, who was quoted as saying that the bank’s current key interest rate of 1% is not necessarily the lowest it could go.
  
• Question marks over the health of the eurozone economy going forward continued to weigh on the single currency yesterday afternoon, although better-than-expected US Existing Home Sales figures trimmed its losses to some extent. This month’s reading of 4.68 million was a significant improvement on the 4.57 million recorded in April, and also ahead of the 4.65 million analysts had been forecasting.
  
• However, investor concern over the state of the eurozone economy weighed heavily on the single currency in late trading yesterday, with it weakening further as a result.
  
• In trading so far today, the single currency has recouped some of the losses it endured yesterday as investors look ahead to some important US figures released later today. Core Durable Goods Orders (MoM) and Unemployment Claims figures are both out at 13.30 BST, whilst at 15.00 BST, New Home Sales figures are set to be released. There are no major announcements due in the eurozone today.

Sterling finishes up against the US dollar

The pound strengthened against the US dollar yesterday by 0.29 cents (0.18%), closing the day at $1.5953.

• In early trading yesterday, the pound strengthened against the dollar to a near seven-month high as rising equities in Asia and receding pessimism in the UK increased demand for perceived riskier assets.
  
• Better-than-expected UK mortgage approval and service sector data released yesterday morning further aided sterling’s gains, causing it to break through the psychological $1.60 level as a result.
  
• Sterling’s rally continued yesterday afternoon as investors pared back some of the large bets taken against the currency following the collapse of Lehman Brothers last year.
  
• In addition, stronger-than-forecast US Existing Home Sales data further buoyed investor appetite for riskier assets like the pound. May’s figure of 4.68 million was ahead of the 4.65 million analysts had been expecting, as well as a significant improvement on the 4.57 million recorded in April.
  
• However, in late trading, the pound pared some of the gains it had made over the day as traders booked profits. It finished up on the day nevertheless.
  
• In trading so far today, sterling has weakened against the dollar as investors take stock of the past week’s gains.
  
• In the UK, CBI Realised Sales figures are out at 11.00 BST, whilst in the US, Core Durable Goods Orders (MoM) and Unemployment Claims data are both out at 13.30 BST. At 15.00 BST, US New Home Sales figures are due to be released.

Sterling gains ground against the euro

The pound strengthened sharply against the euro yesterday by 1.52 cents (1.34%) to finish the day at 1.1537.

• In early trading yesterday sterling strengthened against the euro, after European Central Bank Governing Council member Erkki Liikanen said the bank’s key interest rate could go lower.
  
• Improved optimism surrounding the UK economy and financial sector drove sterling over a cent higher against the single currency mid-afternoon. Investor appetite for riskier assets like the pound were also helped by global equity market rises, buoyed by much better-than-expected US consumer confidence figures released on Tuesday.
  
• Finally, improved UK mortgage approval and service sector data also contributed to sterling’s strength yesterday.
  
• In trading so far today the pound has pared some of the gains it made yesterday, as investors take stock before important UK data out later today. At 11.00 BST UK CBI Realised Sales figures are due. There are no major announcements out in the eurozone today.

Kiwi loses ground against aussie & sterling

The New Zealand dollar lost ground against the aussie and sterling yesterday, as investors largely focused on the New Zealand government budget due on Thursday.

• However, the kiwi recovered ground sharply against the pound overnight, after the National Bank of New Zealand's monthly survey of business confidence showed that confidence is up across all business segments.
  
• But the New Zealand dollar’s gains were cut short after dairy giant Fonterra cut its forecast for milk prices, bad news for the dairy sector in New Zealand.

Aussie strengthens back against sterling

The Australian dollar strengthened back against sterling yesterday, after a lack of domestic data saw investors concentrate on equity markets and the US.

• A rise in US consumer confidence, and a subsequent move up in equity markets, saw an increased demand for riskier assets.
  
• This helped support the high yielding aussie, and movements were also exacerbated by continuing thin trade as traders returned to work in the UK and US.
  
• Given the lack of major economic data out of the UK this week direction is likely to continue to come from equity market movements and market confidence.

Euro weakens against greenback

The euro weakened against the US dollar yesterday by 0.29 cents (0.21%), closing the day at $1.3984.

• In early trading yesterday the euro weakened by over a cent against the dollar, following news that German regulator BaFin had warned that toxic debt of the country’s banks would blow up “like a grenade” unless they took advantage of government bad-bank plans to prepare for the next phase of the crisis.
  
• However, the euro clawed back some of its earlier losses yesterday afternoon following the release of better-than-expected US consumer confidence data yesterday afternoon. The Conference Board consumer confidence index rose to 54.9 in May from an upwardly revised 40.8 in April. This was much stronger than the 42.0 analysts had been forecasting. Nevertheless, the single currency still finished the day slightly down against the dollar.
  
• In trading so far today the euro has resumed its slide against the greenback, as investors continue to speculate over how far off an economic recovery the eurozone may be following yesterday’s report questioning the health of the German banking system.
  
• There are no major announcements due in the eurozone today, whilst in the US Existing Home Sales data is out at 15.00 BST.

Sterling rose against US dollar yesterday

Sterling strengthened against the US dollar yesterday by 0.18 cents (0.11%), finishing the day at $1.5924.

• In early trading yesterday, sterling weakened against the greenback as traders booked profits following the pound’s rally last week. Early falls on global equity markets also contributed to sterling’s falls.
  
• News of more missile launches by North Korea also triggered safe-haven demand for the dollar, with investors selling off the riskier pound.
  
• However, stronger-than-forecast US consumer confidence data released yesterday afternoon drove demand for sterling, pushing it into positive territory. The Conference Board’s index rose from an upwardly revised 40.8 in April to 54.9 in May, well ahead of the 42.0 analysts had been expecting.
  
• In trading so far today, the pound has resumed its rise against the greenback as improved risk sentiment continues to flood the market.
  
• In the US, Existing Home Sales data will be released at 15.00 BST today. There are no major announcements due in the UK.

Sterling strengthened vs. single currency yesterday

The pound strengthened against the euro by 0.38 cents (0.33%) yesterday to finish the day at 1.1385.

• In early trading yesterday sterling strengthened against the euro, after news that Germany’s financial regulator BaFin had warned that toxic debt of the country’s banks would explode “like a grenade” unless they accepted government bad-bank plans to prepare for the next phase of the crisis.
  
• The pound’s gains were extended yesterday afternoon after London equity markets pared early losses to head into positive territory. The shortage of economic data out in the UK this week means that investors are likely to take their lead from equities for the foreseeable future. The FTSE 100 eventually finished the day up 46.43 points at 4411.72.
  
• In trading so far today sterling has continued its rise against the single currency after Asian stocks hit their highest level in more than seven months overnight.
  
• There are no major announcements due in UK or eurozone today.

Sterling finishes down against the euro

The pound weakened against the euro yesterday by 0.35 cents (0.31%), finishing the day at 1.1347.

• In a quiet day’s trading because of the UK Bank Holiday, the euro strengthened against sterling on Monday as some investors took advantage to push sterling lower.
  
• This move came despite worse-than-expected German Ifo Business Climate figures, which revealed a rise to just 84.2 this month from 83.7 in April, well below the 85.1 analysts had predicted.
  
• On Friday, the pound weakened against the euro after Thursday’s announcement that a ratings agency had lowered its UK outlook from “stable” to “negative” reduced investor appetite for the UK currency.
  
• Standard & Poor’s justified their decision to lower its rating based on the fact that UK government debt could near 100% of GDP. Sterling’s fall came despite S&P affirming that they were not looking to cut Britain’s ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings.
  
• Elsewhere, data released on Friday morning showed the UK economy contracted an unrevised 1.9% in the first three months of the year.
  
• In trading so far today, the pound has pared all of Monday’s losses against the euro after a report in The Daily Telegraph revealed that German regulator BaFin had warned that toxic debt of the country’s banks would blow up “like a grenade” unless they took advantage of government bad-bank plans to prepare for the next phase of the crisis.
  
• There are no major announcements due in the eurozone or UK today.

Pound weakens slightly against US dollar in quiet trading

The pound weakened against the US dollar yesterday by 0.28 cents (0.18%), closing the day at $1.5906.

• In a light day’s trading because of the public holiday in both the US and UK, sterling weakened slightly against the greenback as some investors booked profits from last week’s healthy rise.
  
• In early trading on Friday, the pound continued its rise against the dollar after concerns surrounding the US’s triple-A sovereign credit rating surfaced. On Thursday, rating agency Standard & Poor’s downgraded its UK outlook from “stable” to “negative”. This sparked broad selling of American stocks and bonds on Friday as fears that record US deficits could lead to a similar downgrade.
  
• Another ratings agency, Moody’s, added to the downward pressure on the greenback after it admitted that although it was comfortable with its triple-A sovereign rating for the US at the moment, it was not guaranteed forever.
  
• In trading so far today, the pound has continued its slide against the dollar as investors await US Treasury auctions to test the strength of market appetite for dollar assets.
  
• There are no major announcements due in the UK today, whilst in the US CB Consumer Confidence data is released at 15.00 BST.

Euro posts small gains against US dollar in light trade

The euro strengthened by 0.17 cents (0.12%) against the US dollar yesterday, finishing the day at $1.4013.

• In a quiet day’s trading because of the American public holiday, the euro strengthened slightly against the greenback as risk appetite in the market continued.
  
• In early trading on Friday, the single currency strengthened against the dollar after investors speculated that the US’s sovereign rating could be downgraded by ratings agencies. Standard and Poor’s decision on Thursday to cut its UK outlook from “stable” to “negative” led many to question which other major nations were susceptible to downgrades.
  
• Although another agency, Moody’s, said it was happy with the US’s ratings at the moment, investors still speculated that it could suffer a downgrade because of its government’s high levels of borrowing. This sent the euro into positive territory against the dollar as investors sold off US assets.
  
• In trading so far today, the euro has weakened against the dollar following news that German regulator BaFin had warned that toxic debt of the country’s banks would explode “like a grenade” unless they took advantage of government bad-bank plans to prepare for the next phase of the crisis.
  
• There are no major announcements due in the eurozone today, whilst at 15.00 BST in the US CB Consumer Confidence data is out.

New Zealand dollar remains well supported

The New Zealand dollar remained well supported against both sterling and the aussie yesterday, as markets awaited the release of a host local economic data, starting with Trade Balance figures released overnight.

• New Zealand Trade Balance data revealed a third consecutive monthly trade surplus in April, while the annual deficit narrowed to NZ$4.1 billion.
  
• This could be the start of a volatile period for the kiwi, with events culminating in the government’s budget on Thursday.
  
• Pressure remains on the government to produce a balanced budget which will appease ratings agencies. Failure to do so may threaten the country’s AA+ credit rating, which would put further pressure on the kiwi.

Australian dollar trades within recent ranges

The Australian dollar traded within recent ranges against sterling yesterday, as a public holiday in the UK kept trade thin.

• Recent optimism over the possible recovery of the world economy, and the subsequent rise in risk appetite, are now starting to dwindle.
  
• More positive economic data to support the view that the world economy is recovering significantly is likely to be needed to extend demand for riskier assets.
  
• If positive data is not forthcoming then the optimism that has supported the aussie in recent weeks could diminish further, undermining the higher yielding currency.

Euro strengthens against the greenback

The euro strengthened against the US dollar by 1.51 cents (1.11%) yesterday, finishing the day at $1.3779.

• In early trading, the euro strengthened against the dollar as improved risk sentiment in the market stoked demand for riskier currencies.
• News that a strong euro had not been a concern among European finance ministers further extended the single currency’s gains yesterday lunch. Portuguese Finance Minister Fernando Teixeira dos Santos’s comments sent the single currency into positive territory after he said the European Union was not concerned about the strength of the single currency.
• Strong performance from European equity markets also stoked the euro’s gains as investors looked to the riskier single currency, and away from the perceived safe-haven of the dollar.
• The dollar plunged in late trading yesterday afternoon after US Treasury secretary Tim Geithner said the financial system was “starting to heal” following a period of severe trauma. His comments further stoked investor confidence that a global economic recovery may tentatively be underway, with riskier currencies like the euro benefitting as a result.

Pound on course for biggest monthly rise vs. USD since 1993

The pound continued to strengthen against the US dollar yesterday, rising 2.79 cents (1.8%) to finish the day at $1.5754.

• In early trading, sterling resumed its rise against the greenback as risk aversion in the market continued to diminish, prompting investors toward riskier assets.
• The pound continued its climb following the release of Bank of England minutes. They showed the MPC unanimously agreed to expand the bank’s asset purchase program by a further £50 billion, although a £75 billion extension was discussed. The fact there were no unpleasant surprises was greeted with relief on the markets.
• Meanwhile, figures released by the Confederation of British Industry showed UK manufacturing orders fell slightly more than expected last month but firms were more upbeat about the future than at any time since last September. This news further extended sterling’s gains.
• A move beyond sterling’s 200-day moving average of $1.5550 – a key technical level – further extended its gains yesterday afternoon.
• Finally, in late trading, comments from US Treasury secretary Tim Geithner that the financial system was “starting to heal” after a period of severe trauma further increased investor appetite for riskier currencies like the pound. His announcement boosted confidence that the worst of recession had passed, tempering safe-haven demand for the dollar.
• The pound has risen 5.6% against the greenback so far this month, leaving it on course for its biggest monthly rise since 1993.
• The pound’s rise has continued in trading so far today as general risk aversion continues to wane in the market.

Sterling strengthens against the single currency

The pound strengthened against the euro by 0.8 cents (0.7%) yesterday, finishing the day at 1.1430.

• In early trading, the pound strengthened against the single currency as pessimism surrounding the UK economy and financial sector eased.
• Adding to the euro’s early dip was the release of worse-than-expected German producer price data, which showed a 1.4% fall in April from the previous month, the sixth monthly decline.
• The release of Bank of England minutes from their last policy meeting, in which they decided to extend their asset purchase program by a further £50 billion, was greeted with relief on the markets mid-morning after it produced no big surprises. The MPC voted unanimously to expand its quantitative easing although, interestingly, they did discuss the possibility of a £75 billion extension.
• However, by lunch the euro had clawed back all of its early losses against the pound as traders booked profits from the previous day’s gains.
• Comments made by Portuguese Finance Minister Fernando Teixeira dos Santos sent the single currency into positive territory after he said a strong euro had not been a concern among European finance ministers. A pull-back in continental equities from session lows also helped to increase risk demand in the market, with the euro again benefitting as a result.
• A downbeat report released by the International Monetary Fund yesterday afternoon further weighed on the pound after it said any recovery in the British economy is likely to be subdued. It also warned that the UK’s high levels of borrowing and the fragility of its financial sector make it susceptible to potential shocks.
• Nevertheless, in late trading the pound eventually clawed back into positive territory against the single currency, as investors remained wary that the eurozone may still have some way to go before its recession bottoms out, with last Friday’s downbeat GDP figures still weighing on many minds.

Pound strengthens against the euro

The pound strengthened against the euro by 0.35 cents yesterday, finishing the day at 1.1350.

• In early trading yesterday the pound strengthened against the euro, following news that UK Financial Investments (UKFI), which manages the UK government’s stakes in RBS and Lloyds Banking Group, had sounded out investors who may be interested in buying some of its holdings in the part-nationalised lenders.
  Sterling’s gains were also aided by continued strength on London equity markets, with the FTSE up 0.5% in early trade.
  
• However, the pound’s early gains were capped after the release of Year-on-Year Consumer Price Index data mid-morning. April’s reading of 2.3% was worse than the 2.4% forecast and the 2.9% recorded in March, prompting some investors to question the UK’s chances of a timely economic recovery.
  
• Elsewhere, much better-than-expected German ZEW Economic Sentiment figures released in the eurozone also allowed the euro to claw back some of sterling’s early gains. It registered at 31.1 for May, far ahead of the 20.0 analysts had forecast and the 13.0 recorded last month.
  
• After a solid day’s trading, London equities lost steam late on, causing the pound to weaken off slightly. The FTSE 100 finished the day up 0.8%.
  
• So far today sterling has resumed its rise against the single currency, as the deep pessimism surrounding the UK’s economic recovery continues to ease.
  
• There are no important economic announcements due in the eurozone today, however in the UK the Bank of England are releasing the Minutes from their last policy meeting at 09.30 BST.

Pound touches year-high against US dollar

The pound strengthened by 1.29 cents against the US dollar yesterday, briefly hitting a year-high before finishing the day at $1.5475.

• In early trading yesterday the pound rose against the greenback as the pessimism surrounding the UK’s economy and financial sector continued to ease. News that talks had taken place between investors and UK Financial Investments (UKFI), which manages Britain’s holdings in RBS and Lloyds Banking Group, about potentially buying some of its stakes improved risk sentiment in the market.
  
• Rises on equity markets also drove the pound higher in early trading, pushing it to its strongest level against the dollar since mid-December.
  
• However, these gains were capped to some extent after worse-than-expected Consumer Price Index figures released in the UK dented risk appetite. April’s reading of 2.3% was slightly down on the 2.4% analysts had been expecting, but a marked fall from the 2.9% recorded the month before.
  
• Weaker-than-forecast US Building Permit data released mid-afternoon also dented sterling’s early gains. April’s reading of 0.49m was significantly lower than the 0.53m forecast and March’s reading of 0.52m. As a core driver of the US housing market, this surprisingly negative result bolstered demand for the safe-haven of the greenback as investors became less confident a global economic recovery may soon be underway.
  
• However, another strong performance by London equity markets drove the pound higher on the day. The FTSE 100 closed the day up 0.8%.
  
• In trading so far today the pound has continued its rise against the greenback, as general risk aversion in the market continues to wane.
  
• There are important releases due on both sides of the Atlantic today. At 9.30 BST, the Bank of England’s Minutes from their last policy meeting are out in the UK, whilst at 19.00 BST in the US, the Fed’s Minutes are released.

Euro rises against US dollar as risk aversion falls

The euro strengthened against the US dollar by 0.68 cents yesterday, finishing the day at 1.3628.

• In early trading yesterday the single currency rose against the US dollar, as risk aversion in the market continued to diminish. Monday’s strong equity market performance carried over to early trade yesterday, with the FTSE 100 up 0.5% mid-morning.
  
• These early gains by the euro were further extended following the release of better-than-expected German ZEW Economic Sentiment data released mid-morning. It registered a rise to 31.1 in May from 13.0 last month, buoying investor confidence that an economic recovery in the eurozone may soon be underway. Importantly, the reading was also well ahead of analysts’ forecasts of 20.0.
  
• However, weaker-than-forecast Building Permit figures released in the US significantly reduced the single currency’s gains mid-afternoon. April’s reading of 0.49m was much lower than the 0.52m recorded last month, and also the 0.53m analysts had forecast. This induced an immediate flight to safety, with some investors offloading the “riskier” euro in favour of the greenback as they worried a global economic recovery may yet be some way off.
  ,li>Nevertheless, the euro closed the day slightly up against the dollar as strong European equity market performance continued to ease risk aversion in the market.
  So far today the single currency has edged slightly higher against the dollar as investors continue to speculate that the eurozone may be on the cusp of an economic recovery.
  ,li>There are no major economic announcements due in the eurozone today, whilst in the US, the Fed’s Minutes from their last policy meeting are due at 19.00 BST.

New Zealand dollar holds its ground

The New Zealand dollar managed to hold its ground against sterling yesterday, but lost further ground to the aussie.

• The kiwi found support from investors seeking high yielding currencies on the back of renewed optimism that the global recession may be ending.
  
• However, with the Reserve Bank of Australia giving indications that it is likely to keep rates on hold, this suggests that the interest rate differential between the kiwi and the aussie may widen even further. This obviously gives the aussie the upper hand in attracting foreign investors.

Australian dollar holds its ground against the pound

The Australian dollar held its ground against sterling yesterday, as the high yielding aussie continues to benefit from an upturn in investor risk appetite.

• Optimism over the financial sector was given a boost as rumours that the institution managing the UK government’s stake in banking giants Lloyds and Royal Bank of Scotland were sounding out investors for a possible sell off.
  
• However, data out yesterday reminded markets that the UK economy was still in a bad way, with consumer price index inflation rising by only 0.2 percent for the month, bringing the annual rate of inflation down to 2.3 percent, from 2.9 percent in March.
  
• Although currency markets are backing sterling to outperform the US dollar and the euro going forward, any rebound against the aussie may take slightly longer.
  
• The Australian economy is in a much better position to recover from the world recession, as it has the highest yield in the developed world and a recovery in world growth would only support its commodity based exports.

Sterling continues its rise against the euro

Sterling continued its rise against the euro yesterday, finishing the day at 1.1315.

• In early trading yesterday the pound climbed against the single currency, as the FTSE 100 recovered from initial losses to record a 0.9% rise mid-morning.
  
• Sterling also gained on the back of Friday’s much worse-than-expected eurozone GDP figures, which revealed a 2.5% contraction in the region’s economy for the first three months of 2009.
  
• The pound’s early gains were also extended yesterday after more upbeat housing figures released by property website Rightmove. Following April’s 1.7% increase, this month saw a 2.4% rise in asking prices for homes in England and Wales, the largest monthly increase since February 2008, although the group did say it should not be mistaken for a housing market recovery just yet. Instead, it said the figures reflected a mixture of “ambition, optimism and necessity”.
  
• In the afternoon the pound continued to strengthen against the euro, as London equity markets rose markedly, driven by strength in banking stocks. News that Lloyds Banking Group chairman Sir Victor Blank would retire by June next year was welcomed by investors, with shares in the company finishing up 9.9% as a result. The FTSE 100 as a whole closed up 2.26%.
  
• In trading so far today the pound has continued its rise against the single currency, although investors are eyeing closely two important pieces of data released in the UK and eurozone later today.
  
• First, in the UK Consumer Price Index figures are due at 09.30 BST, shortly followed in the eurozone by the German ZEW Economic Sentiment Survey at 10.00 BST.

Sterling makes strong gains against the US dollar

The pound strengthened markedly against the US dollar yesterday, finishing the day at $1.5346.

• In early trading yesterday sterling climbed against the dollar, as London equity markets recovered from an initial 1% drop.
  
• Elsewhere, monthly figures from property group Rightmove aided sterling’s gains yesterday morning, as they showed asking prices in May rose by 2.4% in England and Wales, the biggest increase for the month since 2003.
  
• However, the group said it did not reflect a return to health of the country’s housing market, but rather a mixture of “ambition, optimism and necessity”. This capped sterling’s early gains to some extent.
  
• Strong performance by London equity markets yesterday afternoon drove sterling higher. Improved sentiment in the banking sector, following the decision of Lloyds Banking Group chairman Sir Victor Blank to retire next year, buoyed investor confidence that a global economic recovery was not too far off. As a result, many bought into the higher-yielding pound, moving away from the perceived safety of the dollar.
  
• In trading so far today the pound has continued its strong rise against the greenback, as general risk aversion in the market remains low.
  
• There are important economic releases due on both sides of the Atlantic today. In the UK, Consumer Price Index figures are out at 9.30 BST, while at 13.30 BST Building Permit data is due in the US.

Euro makes gains against US dollar as equities rise

The euro strengthened against the US dollar yesterday, finishing the day at $1.3560.

• In early trading yesterday the single currency weakened against the greenback, as investors continued to digest Friday’s much worse-than-expected first quarter eurozone GDP figures. They revealed a 2.5% contraction in the region’s economy for the first three months of 2009.
  
• Interestingly, comments from European Central Bank Governing Council member Axel Weber did little to stem the euro’s decline yesterday morning. He said the ECB had done enough to support the ailing eurozone economy unless the situation got noticeably worse.
  
• However, strong performance from global equity markets yesterday afternoon reversed early losses for the euro, as general risk appetite returned to the market. As a result, investors bought into the “riskier” single currency and sold the safe-haven of the greenback.
  
• The FTSE 100 finished the day up 2.26% at 4446.45, whilst the Dow Jones posted a healthy 2.85% rise to 8268.64. Strength in the banking sector in particular drove these gains.
  
• In trading so far today the euro has resumed its rise against the US dollar, as reduced risk aversion continues to sweep the market.
  
• There are major announcements due in both the eurozone and the US today. In the former, German ZEW Economic Sentiment Survey is out at 10.00 BST, whilst in the latter Building Permit figures are released at 13.30 BST.

New Zealand dollar holds its ground

The New Zealand dollar managed to hold its ground against sterling yesterday, as gains in equity markets and a reversal in risk aversion saw some support for the kiwi.

• Equities in the UK and the US rose yesterday, encouraging investors to buy back into riskier currencies like the New Zealand dollar.
  
• However, the kiwi’s support will remain tentative given the country's ongoing economic woes.
  
• Markets are likely to wait for further economic data, which may give further clues to the recovery process of the world economy, before giving the kiwi further support.

Australian dollar recovers ground on stronger equity markets

The Australian dollar strengthened back against sterling yesterday, as risk appetite came back into favour due to rising equity markets.

• With little economic news yesterday, positive remarks from many of the world’s top central bankers saw demand for higher -yielding currencies rise.
  
• The aussie dollar was also supported overnight by the release of the RBA minutes from their last meeting. The wide range of economic data considered by the Board generally pointed to some improvement in confidence and economic activity, and investors now believe the Reserve Bank has concluded its dramatic sequence of rate cuts.
  
• This morning inflation and retail figures will be released in the UK, marking the start of a series of UK data due out over the next few days. This will be important to the near-term direction of the pound.

Pound strengthens against the euro following eurozone GDP figures

The pound strengthened against the euro on Friday, finishing the day at 1.1246.

• A set of grim economic figures in the eurozone weighed on the single currency all day on Friday, as investor confidence that a recovery in the region may soon be underway diminished.
  
• German GDP data showed the country’s economy had contracted by 3.8% in the first quarter of 2009, the largest drop since the country started compiling quarterly data in 1970.
  
• Moreover, GDP in the eurozone fell by a much larger-than-expected 2.5% in the period, much faster than the US slowdown. Following a 1.6% contraction in the 16-country region in the final three months of 2008, Friday’s figure deepened what was already the worst recession in continental Europe since World War II.
  
• Sterling therefore gained on the view that whilst the UK economy remains weak, it appears the eurozone economy may be in worse shape, and could take longer to recover from the downturn. As a result, investors bought into the pound, dumping the single currency.
  
• In trading so far today the pound has continued its rise against the euro, as investors remain wary about buying into the single currency following Friday’s data.
  There are no major economic announcements due in either the UK or eurozone today.

Pound weakens against the US dollar

The pound weakened against the US dollar on Friday, finishing the day at $1.5177.

• Ongoing risk-aversion following some poor economic figures last week weighed on the higher-yielding pound, as investors looked to the perceived safe-haven of the greenback throughout the day.
  ,li>Much worse-than-expected first quarter GDP figures in the eurozone exacerbated this flight to safety as concern a global economic recovery may still be some way off weighed on “riskier” currencies like the pound. Figures released on Friday showed the contraction in the eurozone’s economy in the first three months of 2009 was a much larger-than-expected 2.5%, following a 1.6% fall in the last quarter of 2008.
  
• The figures dented general risk sentiment in the market, particularly after ECB President Jean-Claude Trichet’s announcement earlier last week that the global economy was at “an infliction point”. Investors reacted by selling off the pound, although it did remain above the psychological $1.50 level.
  
• In trading so far today the pound has continued its slide against the US dollar, as news that Lloyds Banking Group chairman Sir Victor Blank would step down before the bank’s 2010 AGM shook confidence in the markets.
  
• There are no major announcements in the UK today, however in the US the Treasury’s Timothy Geithner is due to speak at a Newsweek Magazine Event at 16.30 BST.

Euro falls sharply against the US dollar

The euro fell sharply against the US dollar on Friday, finishing the day at $1.3492.

• Much weaker-than-forecast first quarter GDP figures released in the eurozone on Friday reduced investor appetite for the single currency, as they opted instead for the perceived ‘safety’ of the greenback.
  
• Germany ’s export-led economy contracted by 3.8% in first three months of 2008, the largest fall since the country started recording quarterly data in 1970.
  
• Elsewhere, the Netherlands saw a 2.8% fall and Italy 2.4%, but the most dramatic decline was in Slovakia – the eurozone’s newest member – who recorded a staggering 11.2% fall in first quarter GDP. This reflected its dependence on car sales and exports to Germany.
  
• Overall, the 16-country region’s economy contracted by a much larger-than-expected 2.5% in the period, faster than the economic slowdown in the US, although analysts did say the figures may have been exaggerated by companies cutting production faster than demand fell, and running down inventories.
  
• Nevertheless, the figures induced a flight to the perceived safety of the greenback, as investors worried that the eurozone may have some way to go before its economic recovery begins.
  
• In trading so far today the single currency has resumed its slide against the US dollar as investors continue to digest Friday’s figures.
  
• At 16.30 BST today, the US Treasury’s Timothy Geithner is set to give a speech at a Newsweek Magazine Event. There are no major announcements in the eurozone today.

Australian dollar weakens as risk appetite falls

The Australian dollar weakened against sterling on Friday, as concerns over the timing of a recovery in the world economy saw investors become more risk averse.

• Recent optimism had driven the high-yielding aussie to multi-year highs against sterling.
  
• However, doubts over an imminent recovery in the global economy started to reverse much of those gains towards the end of last week.
  
• Stock markets fell across Asia overnight despite encouraging Consumer Confidence data from Japan, as uncertainty about a recovery in the world economy kept investors from buying riskier assets.
  
• Focus is likely to remain on economic data this week, with major inflation and retail sales data due out of the UK, while both the Bank of England and the Reserve Bank of Australia release minutes from their last meeting later this week.

New Zealand dollar remains on the back foot

The New Zealand dollar remained on the back foot on Friday, as increased risk aversion saw investors flee to the relative safe havens of the greenback and the yen.

• Weak retail sales from New Zealand late last week reinforced expectations that the Reserve Bank of New Zealand will cut rates again in the coming months.
  
• This is likely to continue to weigh on the kiwi, particularly given the ongoing gloomy economic outlook for the domestic economy.
  
• Stock markets across Asia fell overnight, despite better Consumer Confidence data from Japan, as uncertainty about a recovery in the world economy dissuade s investors from buying riskier assets.

Pound makes gains against the euro after German GDP data

The pound strengthened against the single currency yesterday, finishing the day at 1.1169.

• In early trading yesterday the pound weakened against the single currency, as the gloomy Bank of England Quarterly Inflation Report weighed on investors’ minds. Governor Mervyn King’s forecast that the UK economy’s recovery will be “slow and protracted” did little to ease sterling’s early plight against the euro.
  
• The BoE expects inflation to fall to 0.5 percent before rising to just above 1 percent in two years' time, while the economy is seen recovering at a slower pace than previously thought.
  
• Sterling was also under early pressure as stock markets were sluggish, although the FTSE 100 eventually finished the day 0.7% up, with a recovery in bank stocks benefiting the pound.
  
• However, in early trading today the euro is under selling pressure following Germany releasing worse than expected GDP data. The German growth figures showed their economy contracted by 3.8% in the first quarter, and by 6.9% on an annualised basis.
  
• With no major announcements due in the UK today, investors will turn their attention to the eurozone GDP figures released at 10.00 BST.

Pound weakens against the US dollar

The pound weakened against the US dollar yesterday, finishing the day at $1.5156.

• In early trading yesterday the pound was buoyed by rallying equities, bringing sterling off a day low of 1.5059.
  
• With no major economic announcements in the UK, investors waited for the announcement of US jobless claims figures in the afternoon. The data showed that during the preceding month 637,000 new Americans applied for unemployment benefit and 6.560 million continued to do so. Both these figures were larger than expected and suggested that the US is suffering more than some expected from recessionary pressures. As such the US dollar’s position was undermined and the pound was able to post further gains.
  
• Producer Price Index data was also released in the US and with volatile food and energy prices removed from the equation they stood 3.4% up on the day and in line with expectations.
  
• With the FTSE closing the day at 4,362.58, up 31.21, the pound continued to strengthen over a broadly weaker dollar as improved sentiment saw investors’ risk appetite improve.
  
• In today’s trading the pound continues to hold its ground as the market awaits the announcement of Consumer Price Index (CPI) data in the US at 13.30 BST. A key indicator for inflation, CPI data measures the changes of prices for a basket of goods in the US economy and investors are currently anticipating a 0.6% contraction on the year. A result significantly different to this will certainly see the pound/dollar rate move sharply.

Euro falls against the US dollar after German GDP data

The euro strengthened against the US dollar yesterday, but has begun losing ground this morning following worse-than-expected GDP data from Germany.

• In early trading yesterday the euro weakened against the dollar as general risk aversion returned to the market. Surprisingly weak US retail sales data released on Wednesday evening, together with the Bank of England’s gloomy outlook for the UK’s economic recovery, dissuaded investors from buying into perceived riskier currencies generally, with the euro suffering as a result.
  
• However, the euro recovered ground in the afternoon following small gains on equity markets, to finish the day slightly up against the dollar.
  
• But the euro has slipped against the US dollar this morning after data showed Germany's gross domestic product fell by 3.8 percent in the first quarter, more than had been expected. The Wiesbaden-based Federal Statistical Office says it is the biggest drop since it began tracking quarter-to-quarter growth in 1970. Forecasts had been for a drop of 3.0 percent on the quarter, seasonally adjusted.
  
• The number of new jobless claims in the US rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week, the Labor Department said. The figures released yesterday exceeded analysts' expectations of 610,000.
  
• Other data yesterday showed US wholesale prices climbed 0.3 percent last month, larger than the 0.1 percent gain economists had expected. The biggest jump in food costs in more than a year offset a second monthly decline in the price of energy products.
  
• There are no significant data releases due from the UK today, while in the US the Consumer Price Index, Empire Manufacturing, Net Long Term TIC Flows, Industrial Production and University of Michigan Consumer Confidence figures are released this afternoon.

New Zealand dollar loses ground after worse-than-expected Retail Sales data

The New Zealand dollar lost ground to the pound overnight after NZ retail sales came in worse-than-expected.

• New Zealand ’s first quarter Retail Sales data fell by a record 2.9%, almost double analysts’ forecasts.
  
• This data will only serve to increase expectations that the Reserve Bank of New Zealand will cut rates further in order to try and revive the ailing economy.
  
• Support for the kiwi remains fragile as worries over the timing of the global economic recovery continue.

Australian dollar claws back some ground against sterling

The Australian dollar managed to claw back some of the previous day's losses against sterling yesterday, as the pound continues to be weighed down by a bleak economic outlook.

• Markets were given a sobering reminder of the difficult recover the UK economy is facing with Wednesday's BoE inflation report.
  
• The British central bank forecast inflation to go well under the banks target range while the economy is expected to recover at a slower pace than was originally thought.
  
• The aussie dollar, on the other hand, remains well supported as a recovery in equity markets yesterday increased risk appetite and demand for higher yielding currencies.
  
• However, the pound has regained some ground against the aussie dollar this morning, after investors sold the euro and bought the pound following worse-than-expected German GDP figures
  With no economic data due from the UK today direction is likely to be determined by broader market movements.

Euro falls after much worse than expected German GDP figures

The euro fell against the pound and the US dollar this morning after Germany released GDP figures which showed that the recession in the eurozone's largest economy is much deeper than expected.

The German first quarter GDP data, released at 7.00 BST this morning, showed a contraction of 3.8% quarter on quarter, compared with a forecast contraction of 3.0%.

Investors will now look to eurozone GDP data due at 10.00 BST today, and the euro may fall sharply if these figures mirror the German data.

Pound weakens against the euro following BoE's Quarterly Inflation Report

The pound weakened against the euro yesterday, finishing the day at 1.1142.

• In early trading yesterday the euro weakened against the pound, as strong results released by Sainsbury’s buoyed investor mood that an economic recovery in the UK would soon be underway. The supermarket chain reported underlying profits of £543 million, up 11.3% from a year earlier.
  
• However, sterling’s early rise was soon capped amid speculation about the Bank of England’s Quarterly Inflation Report out mid-morning. Its release prompted a steep fall in sterling after the bank slashed its year-on-year growth forecast to -4.5% at its lowest point, adding that the UK’s recovery would be “slow and protracted”. The BoE also said it did not expect the country’s economy to grow until the middle of 2010. This induced an immediate flight away from the pound, quickly strengthening the euro by over half a cent.
  
• Governor Mervyn King’s admission that he remains comfortable with the recent depreciation in sterling was also a blow to the pound, although he did say it provided one of the reasons to believe economic activity will rebound in the short-term.
  
• Finally, the BoE’s forecast that inflation will fall to 0.5% before rising to just above 1% in two years’ time did little to ease the pound’s plight, with most analysts agreeing that interest rates will have to remain at their current low level of 0.5% for the foreseeable future, and a further extension of the central bank’s quantitative easing program cannot be ruled out. This news further weighed on the pound, strengthening the single currency.
  
• In early trading today the pound has pared some of yesterday’s losses as investors continue to digest yesterday’s news.
  There are no major data releases due in the UK today, whilst in the eurozone, the ECB’s Monthly Report is out at 09.00 BST.

Pound weakens against the US dollar as risk appetite falls

The pound weakened against the US dollar yesterday, finishing the day at $1.5156.

• In early trading yesterday the pound continued its rise against the greenback after Sainsbury’s reported an 11.3% rise in underlying annual profits to £543 million, up from £488 million a year earlier. This news further buoyed investor confidence that an economic recovery in the UK may soon be underway, driving London equity markets slightly higher in early trading.
  
• However, sterling’s gains were capped to some extent because of the early release of the UK’s latest unemployment figures on Tuesday. It showed the number of people out of work in the UK rose by 244,000 to 2.22 million in the first three months of 2009, the biggest quarterly rise since 1981, taking the total jobless rate to 7.1%.
  
• In addition, speculation about the release of the Bank of England’s Quarterly Inflation Report mid-morning also weighed on the pound early on, as the market waited for more guidance about the bank’s quantitative easing plans going forward. Last week the central bank unexpectedly announced a £50 billion extension to its asset purchase program.
  
• When the announcement came, sterling very rapidly retreated into negative territory against the greenback, as the BoE announced it expected the UK’s economic recovery to be “slow and protracted”. It forecast a 4.5% year-on-year decline in economic growth at its lowest point and said it did not expect the economy to grow again until the middle of next year. London equity markets fell heavily as a result, weakening the pound markedly as investors looked to the perceived safety of the greenback.
  
• In addition, the BoE’s forecast that inflation will fall below the 2% target for the next three years did little to ease the pound’s plight into yesterday lunch.
  Sterling ’s losses were further extended in the afternoon after the release of worse-than-expected retail sales data in America. Sales at US retailers fell by 0.4% last month, much lower than the 0% analysts had been forecasting after the 1.2% drop in March. This bolstered demand for the safe-haven of the dollar, with the pound weakening over a cent at one point.
  
• In early trading today the pound has resumed its slide against the dollar, as investors continued to absorb the details of yesterday’s BoE report.
  There are no major announcements due in the UK today, however in the US Month-on-Month Producer Price Index figures for April are out at 13.30 BST.

US dollar strengthens as risk appetite fades

The euro weakened against the US dollar yesterday, finishing the day at $1.3599.

• In early trading yesterday the euro strengthened slightly against the greenback after it was reported in the Financial Times that America’s AAA credit rating could potentially be downgraded. However, analysts urged caution on the article because the US has run a persistent and growing budget deficit for years, highlighting the huge economic, political and financial implications in the highly unlikely event a downgrade should ever take place.
  
• News that the Bank of England had significantly downsized its growth forecasts for the UK reduced risk appetite in the market generally, with perceived “riskier” currencies like the euro suffering as a result. The BoE said it did not expect the UK’s economy to start growing until the middle of 2010, as well as forecasting a 4.5% year-on-year decline in economic growth at its lowest point.
  
• The euro’s fall was further compounded by the news that retail sales figures in the world’s largest economy were unexpectedly down last month, diming optimism that an economic recovery may soon be underway. April’s reading of -0.4% was well below the 0% change analysts had expected in US retail sales, particularly after the 1.2% fall in March.
  
• Heavy falls on global equity markets also did little to ease the euro’s plight yesterday afternoon, as investor confidence that a global economic recovery will soon be underway faded, encouraging them to look to the perceived safety of the greenback.
  
• In trading so far today the euro has resumed its slide against the dollar as investor risk appetite continues to dim.
  
• There is some important data due out today in both the US and the eurozone. In the latter, the ECB’s Monthly Report will be released at 09.00 BST, whilst in the former Month-on-Month Producer Price Index data for April is due at 13.30 BST.

New Zealand dollar gives back some ground to the pound

The New Zealand dollar gave back some of its recent gains against the aussie and sterling yesterday, as positive global economic sentiment began to wane.

• Weak economic data out of both the US and the UK saw a return of risk aversion, denting demand for high yielding currencies.
  
• The BoE’s inflation report suggested inflation may fall to 0.5 percent, while the economy may contract further over the next few months before recovering at a slower pace than expected.
  
• A Reserve Bank of New Zealand report also weighed on the New Zealand dollar, with the report saying the central bank needed to maintain its current liquidity levels due to further bad debts and losses by banks being likely.

Pound climbs back above $2 against the Australian dollar

The Australian dollar weakened against sterling yesterday, climbing above A$2 despite the release of a gloomy Bank of England forecast.

• The BoE suggested inflation may fall to 0.5 percent before rising, while the economy is expected to contract further over the next few months before recovering at a slower than expected pace.
  
• This news had the effect of dampening recent optimism that the UK economy was over the worst of its recession, while also leaving the door open for the BoE to extend its quantitative easing programme.
  
• However, the pound’s direction was largely determined by the return of risk aversion, with sterling climbing back above A$2 in the afternoon as investors sold off the riskier aussie dollar.
  
• Recent optimism over a potential recovery in the global economy had driven the high yielding aussie to 12 year highs against sterling. But weak economic data has dented this theory and will likely add further pressure on the aussie if this type of data continues.

Pound makes gains against the euro

The pound strengthened against the euro yesterday, finishing the day at 1.1187.

• In early trading yesterday the pound strengthened against the euro as stronger-than-forecast data released in the UK fanned demand for sterling.
  
• Figures released by the British Retail Consortium showed a 6.3% month-on-month rise in value of sales in shops for April, following increases of 0.1% in February and 0.6% in March.
  
• In addition, stronger-than-expected UK manufacturing and industrial data also improved investor appetite for sterling. Month-on-Month Industrial Production registered at -0.6%, better than the -0.7% forecasted, while Month-on-Month Manufacturing Production came in at -0.1%, up from -0.9% in March. Although the latter represented the biggest quarterly fall in UK production since records began in 1948, investors took it as an encouraging sign that the pace of the UK’s recession may be easing.
  
• However, the pound’s gains were capped to some extent after President of the European Central Bank Jean-Claude Trichet’s comments at a press conference on Monday, where he said policymakers could see the first signs of an economic recovery in the eurozone. Nevertheless, sterling went into lunch well up against the single currency.
  
• However, the surprise announcement of UK unemployment data yesterday afternoon after the Office of National Statistics accidentally released them meant sterling lost some steam in late trading. The figures showed that the number of people out of work in the UK rose to 2.22 million in the first quarter of 2009, taking the total jobless rate to 7.1%. This was the worst unemployment figure since 1996. Also, benefit claimants in April rose 57,100 to 1.51 million.
  
• Nevertheless, sterling strengthened on the day against the single currency as investors, buoyed by the positive data released early in the day, remained confident an economic recovery in the UK may not be too far off.
  
• In trading so far today sterling has pared some of yesterday’s gains, as caution ahead of today’s Bank of England Quarterly Inflation Report, released at 10.30 BST, encouraged some investors to book profits. There are no major announcements due in the eurozone today.

Pound strengthens by over a cent against the US dollar

Sterling strengthened by over a cent against the US dollar yesterday, reaching a 4-month high before finishing the day at $1.5271.

• In early trading yesterday the pound strengthened against the US dollar, as better-than-expected British manufacturing data improved risk appetite in the market. Figures released by the Official of National Statistics showed manufacturing output fell by 0.1% in March, beating consensus forecasts for a 0.8% drop. Investors took this an encouraging sign that the recession was starting to ease, despite the fact it was the largest quarterly drop in UK production since records began in 1948.
  
• Sterling also rose early in the session on the back of strong UK retail sales data released by the British Retail Consortium. They reported a 6.3% rise in the value of sales in shops in April against a year earlier, further building on the 0.6% increase in March.
  
• Elsewhere, the Royal Institute of Chartered Surveyors also released surprisingly positive UK housing data, reporting that enquiries from new homebuyers rose to their highest level since 1999.
  
• More generally, investors took heart from data released in China on Monday night, which showed investment spending rose even though exports fell more steeply than expected, buoying demand for more high-yielding currencies like the pound.
  
• As a result, with risk appetite improving, sterling climbed over 1% in the morning session to hit a four-month high.
  
• In the early afternoon, stronger-than-forecast US Trade Balance data further extended sterling’s gains. Although it was down from last month’s -$25.97 billion, this month’s -$27.58 billion was far ahead of the -$28.90 billion analysts had predicted. This further improved risk sentiment in the market, with investors selling out of the perceived safe-haven of the greenback. Sterling hit a session high of $1.5350 as a result.
  
• However, sterling’s gains were capped mid-afternoon after the accidental release of British unemployment data a day early. It revealed the number of people out of work in the UK rose by 244,000 to 2.22 million in the first three months of 2009, the biggest quarterly rise since 1981. This took the total jobless rate to 7.1%.
  
• Despite this, though, sterling rose strongly on the day, finishing the day up over a cent against the greenback.
  
• Sterling has pared some of yesterday’s gains in trading so far today, ahead of some important data releases from both the UK and the US. In the former, the Bank of England’s Quarterly Inflation Report is due for release at 10.30 BST, followed by a speech by Governor Mervyn King, whilst in the latter Month-on-Month Retail Sales figures for April are out at 13.30 BST.

Euro touches 7-week high against the US dollar

The euro strengthened against the US dollar yesterday, climbing to a 7-week high before finishing the day at $1.3647.

• In early trading the euro strengthened against the greenback, after better-than-expected UK retail sales, housing market and industrial production data buoyed investor demand for riskier currencies.
  
• The single currency also rose early yesterday on the back of positive comments from the European Central Bank President made the previous day. Jean-Claude Trichet said the eurozone’s economy is at an “inflection point” and was showing tentative signs of recovery.
  li>Also boosting demand for more high-yield currencies like the euro was the news that investment spending in China had soared, even though its exports fell more sharply than expected. This further fanned risk appetite in the market, helping the euro hit a seven-week high against the dollar just before lunch.
  
• The single currency’s gains were extended following the release of much better-than-expected US Trade Balance figures early yesterday afternoon. This month’s reading of -$27.58 billion was far ahead of the -$28.90 billion analysts had forecast.
  
• As a result, the single currency finished up markedly on the day, its fourth rise in five days against the greenback.
  
• The euro has resumed its rise against the dollar this morning as improved risk sentiment in the market continues. There are no important announcements due in the eurozone today, while in the US Month-on-Month Retail Sales figures for April are due at 13.30 BST.

Kiwi dollar remains range bound

The New Zealand dollar remained largely range bound against the pound yesterday.

• The release of better-than-expected production data from the UK was offset by the early release of employment data showing the worst unemployment rate since 1996.
  
• The kiwi dollar continued to be underpinned by renewed investor risk appetite, which has helped commodities as well as high yielding currencies.
  
• The kiwi's direction is likely to continue to be directed by the ebb and flow of equity markets, which is still being used as a barometer for risk appetite.

Australian dollar holds its ground against the pound

The Australian dollar managed to hold its ground against sterling yesterday, despite the pound receiving support from stronger than expected data from the UK.

• The pound climbed back up past the A$2 level yesterday, following the release of better than expected production figures and retail sales data.
  
• However, the early release of employment figures in the afternoon dampened sterling’s gains, pushing the pound below A$2 again after the figures showed the ILO unemployment rate rose to 7.1 percent, from 6.7 percent the previous month.
  
• Reaction to the Australian Federal budget remained muted, as its economic projections and forecast deficit was within analysts’ expectations. Investors will focus on the BoE today, with the release of their inflationary report due, along with a speech by Governor Mervyn King.

Sterling hits four-month high against the US dollar

The pound has climbed to a four-month high against the US dollar, and the rate at present is in the top 1% of this year's range. Comments by George Soros, together with the recent bull rise on the FTSE, have driven the pound’s strength recently. Caxton FX Analyst David Clements says, "the market could continue to head higher due to increasing confidence in the UK economy, however last time it traded at these levels sterling fell to below $1.35 in less than two weeks."

Sterling continues it's slide against the euro

Sterling continued its slide against the euro yesterday, finishing at 1.1129.

• In early trading yesterday the euro rose against the pound, as investors continued to absorb last week’s policy decisions from the Bank of England and the European Central Bank. Most appear to consider the BoE’s decision to extend its quantitative easing program by an another £50 billion as negative news, whereas the ECB’s decision to cut interest rates and boost credit through the purchase of covered bonds is being seen as decisive.
  
• Wednesday’s BoE quarterly inflation report also contributed to the single currency’s early gains, with some analysts forecasting further bad news for the UK economy.
  
• Speculation ahead of HSBC’s first quarter results also contributed to the selling pressure on the pound yesterday morning, primarily because the UK is so dependent on the banking sector.
  
• When they came, the bank’s results were poorly received by the market after it admitted profits were swelled by record results in its investment bank. This further extended sterling’s losses yesterday afternoon as the FTSE 100 fell markedly.
  
• In addition, HSBC’s chief executive, Michael Geoghegan, warned it was too early to see any ‘green shoots’ in terms of an economic recovery, despite an increase in consumer confidence. This further weighed on the pound into the afternoon as the FTSE 100 fell further, eventually closing the day down 26.59 points at 4435.50.
  
• In early trading so far today, sterling has continued to weaken against the euro as investors continue to digest last week’s interest rate decisions and yesterday’s banking results.
  
• There are no major announcements due in the eurozone today, however at 9.30 BST there are some important pieces of data out in the UK, namely the Goods Trade Balance for March, Year-on-Year and Month-on-Month Industrial Production and Manufacturing Production figures and March’s Total Trade Balance.

Pound weakens against the US dollar as risk aversion returns

The pound weakened against the US dollar yesterday, finishing the day at $1.5117.

• In early trading yesterday the pound weakened from a four-month high against the US dollar, as investors continued to digest last week’s “aggressive” BoE decision to extend its quantitative easing programme by an another £50 billion.
  Sterling ’s losses were also driven early on by falls in London equity markets ahead of European banking results later in the day. At one point the FTSE 100 was down 0.7%.
  
• Although there were no major announcements due in the UK yesterday, analysts expect data released later this week – including labour market and industrial production data – to be weak, further contributing to the downward selling pressure on the pound yesterday morning.
  
• HSBC’s admission that its first quarter profits would have been down without accounting gains on its debts weighed on London equity markets early yesterday afternoon, with the banking sector particularly weak. The chief executive’s admission that the recession has ‘got some time to go’ did little to stem these losses.
  
• With the UK’s economic recovery far from certain, investors were reluctant to push riskier assets even higher and instead booked profits, particularly in banking shares and oil. Sterling weakened further mid-afternoon as a result, with investors looking to the safe haven of the greenback for their capital.
  
• In trading so far today the pound has weakened slightly against the dollar, as risk-aversion continues ahead of the release of important data on both sides of the Atlantic today.
  
• In the UK at 9.30 BST, the Goods Trade Balance for March, Year-on-Year and Month-on-Month Industrial Production and Manufacturing Production figures and March’s Total Trade Balance is due. In the US, Trade Balance figures will be released at 13.30 BST.

US dollar strengthens against the euro on renewed risk aversion

The US dollar strengthened against the euro yesterday as risk-aversion returned to the market, finishing the day at 1.3580.

• In early trading yesterday the US dollar rose slightly against the euro, as investors became cautious ahead of HSBC’s first quarter results. This speculation dented last week’s positive sentiment on the financial markets, causing investors to buy into the perceived safe-haven of the greenback early on.
  
• Although significantly better than the last three months of 2008, when the results came they did little to ease investor nerves into lunchtime, as the bank admitted its figures were boosted by one-off gains.
  
• However, a Chinese government report showing urban fixed-asset investment rose at the fastest pace in more than two years spurred demand for higher-yielding currencies like the euro mid-afternoon.
  
• The single currency’s rally mid-afternoon was further extended following a press conference held by President of the ECB, Jean-Claude Trichet, where he said policymakers could see the first signs of an economic recovery: “As far as growth is concerned, we’re around the inflection point in the cycle, that’s the sentiment.”
  
• However, the euro’s gains were wiped out late in the day yesterday as general risk-aversion returned to the market following further falls on European equity markets. Investor speculation surrounding the eurozone’s GDP and CPI figures due on Friday also weighed on the euro as some feared the region may be some way off an economic recovery.
  
• In trading so far today the euro has pared all of yesterday’s losses against the dollar, as investors continue to digest last week’s “decisive” ECB policy decision.
  There are no major announcements due in the eurozone today, whilst in the US the Trade Balance is out at 13.30 BST.

New Zealand dollar's recovery stalls

The New Zealand dollar's recovery stalled yesterday, as falling equity and commodity prices saw investors tighten up on their risk exposure.

• Many analysts believe the kiwi’s gains are overdone and that domestic economic fundamentals will start to drive the currency again.
  
• Although there are some early signs that the decline in economic activity may be levelling off the short term outlook for the economy is still fairly gloomy.
  
• More negative domestic data should therefore allow the pound to recover further ground against the kiwi.

Australian dollar undermined by falling risk appetite

The Australian dollar weakened against the pound yesterday, as the rally in risk demand stalled with equity markets and commodity prices both falling.

• After a week of improving market sentiment investor focus is starting to turn back to economic fundamentals.
  
• Economic data has not yet matched the improvement in sentiment and could prove a reality check to markets in terms of how long it will take for economies to start to recover.
  
• Investors locally will focus on the Australian Federal budget figures due at 10.30 BST today
  
• The UK also sees a raft of economic data released today, including industrial and manufacturing figures along with the country's trade balance data.

Pound continues to slide against the euro

The pound continued Thursday’s slide against the euro on Friday, closing the day at 1.1169.

• In early trading Friday sterling recovered some of the previous day’s losses against the euro, as the market continued to digest Thursday’s policy decisions from the Bank of England and European Central Bank.
  
• Stronger-than-forecast Industrial Productions data for March released in Germany strengthened demand for the single currency mid-morning. Month-on-Month came in at 0%, much better than the -1.3% expected and the -2.9% recorded in February, whilst Year-on-Year was at -20.4%, again a rise from the -20.6% recorded last month and the -20.9% expected.
  
• However, strong London equity market performance capped the single currency’s gains to some extent, with the FTSE 100 up 1.7% at one point.
  
• But Thursday’s policy decisions by the BoE and ECB weighed on the pound throughout the day. Both involved some elements of surprise, but in the end news that the BoE was to expand its asset purchase programme by £50 billion to £125 billion was taken as a negative for sterling and a positive for the euro.
  
• The ECB’s decision to cut interest rates by a quarter point and unexpectedly buy some 60 million euros of covered bonds also contributed to the single currency’s gains. Investors were pleased the central bank was taking decisive action, however limited, to stem the region’s economic decline.
  
• In early trading today the pound has resumed its slide against the euro as the markets continue to digest last week’s announcements. There are no major data releases due in the UK or eurozone today.

Pound gains more than two cents against the US dollar

The pound strengthened by over two cents against the US dollar on Friday, finishing the day at $1.5231.

• In early trading on Friday the greenback slipped against the pound ahead of US Non-farm Payrolls data for April. Traders expected the US economy to have shed 590k jobs, less than the 663k in March, and therefore some took on more risky positions.
  
• However, trade was relatively quiet following Thursday’s results of US “stress tests”, which did not yield any negative surprises. Sterling remained above the psychologically key $1.50 level as a result.
  
• The news US employers only shed 539k jobs in April further extended sterling’s gains against the US dollar early Friday afternoon.
  
• However, worse-than-expected Month-on-Month and Year-on-Year Average Hourly Earnings figures released in the US capped demand for sterling to some extent.
  
• Elsewhere, strong gains on the FTSE 100 buoyed investor demand for the pound, primarily because the UK economy is so dependent on the financial services sector. At one point the FTSE 100 was up 1.7%, although it eventually finished the day up 1.44%.
  
• Optimistic mood in the financial markets improved risk sentiment on Friday afternoon, causing investors to buy into the perceived riskier pound, selling the safe-haven US dollar.
  
• In early trading today the pound has pared some of Friday’s gains against the US dollar, as investors continue to digest last week’s market-moving events.
  There are no major announcements due in the UK or the US today.

Euro makes strong gains against the US dollar

The euro rose markedly against the US dollar on Friday, strengthening 1.7% to finish the day at 1.3633.

• In early trading on Friday the euro rose against the US dollar, as expectations the pace of US job losses may be slowing prompted some traders to take on the “riskier” single currency.
  
• The euro also strengthened on the view that the ECB was taking action – however limited – to help the region’s ailing economy, following the announcement of their quantitative easing program the day before.
  
• The release of US Non-farm Payrolls data further strengthened the euro early in the afternoon, as it showed that US employers cut 539k jobs in April, much less than the 590k economists predicted and the 663k last month.
  
• The employment report did include some less encouraging signs, however, including a rise in the jobless rate to 8.9%, the highest since September 1983, but investors largely shrugged this off, with the euro hitting a one-month high in the early afternoon.
  
• The single currency continued its gains Friday afternoon, buoyed by news it had broken through its 200-day moving average, a key resistance on the charts. Analysts said buying by funds using trading models was behind some the currency’s strength.
  
• Finally, a general improvement in risk appetite following strong equity market performance on Friday also contributed to the euro’s gains, as investors sold the greenback to buy into the higher-yielding single currency.
  
• In early trading today the euro has pared some of Friday’s gains as investor hesitancy sets in ahead of some important announcements later in the week.
  
• There are no major announcements due in the eurozone today or the US today.

New Zealand dollar supported by increased optimism

The New Zealand dollar hit a 5-month high against the pound this morning on improved risk appetite.

• Increased optimism over the global economic outlook saw a surge in investor risk appetite
  
• The New Zealand dollar managed to hold onto recent gains against the Australian dollar and sterling overnight as a result
  
• But further kiwi gains may be limited as concerns still linger over the health of the domestic economy
  
• Economic fundamentals still remain weak in New Zealand, with interest rates likely remain low for an extended period of time

Australian dollar remains near 12 year high

The Australian dollar remains very well supported against the pound, after hitting a fresh 12 year high on Friday.

• The Australian dollar consolidated on its recent gains against sterling overnight, as gains in equity markets and stronger commodity prices continued to drive demand for the aussie


• While the aussie continues to benefit from an upturn in optimism and increased demand for risk, sterling continues to be weighed down by the Bank of England's surprise decision to announce an extension to its quantitative easing programme


• Many in the market had assumed the BoE would wait until its initial 3 month plan had finished and they could discern whether any further easing was required

Important economic data due from the US next week

Next week there are some big data releases and announcements due in America:

• On Monday, US Fed Chairman Ben Bernanke is due to give a speech on “stress tests” at Jekyll Island, Georgia at 23.30 BST
  
• The following day, at 13.30 BST, very important US Trade Balance figures are due for release, which we expect to register at -$29.4 billion
  
• On Wednesday April’s Advance Retail Sales figures are due at 13.30 BST, which we forecast will rise from -1.2% in March to 0%
  
• Thursday sees the release of Producer Price Index data. We predict Month-on-Month and Year-on-Year figures for this will be 0.1% and -3.9% respectively. Excluding food and energy, however, we expect the PPI figures to come in at 0.1% and 3.4% respectively
  
• Finally, on Friday Year-on-Year CPI data, including and excluding food and energy, is released, which we expect to register at -0.6% and 1.8% respectively.

Economic data due from the eurozone next week

Looking forward to next week, CaxtonFX analysts have highlighted some key announcements to look out for in the eurozone:

• On Tuesday, EU Harmonised German Month-on-Month CPI data for April is released at 08.00 BST, and we expect it to come in at 0%, as it did in March
  
• Also worth looking out for is the release of German 1Q GDP data on Friday next week at 08.00 BST. We forecast Quarter-on-Quarter figures to come in at -3% and Year-on-Year to register at -6%
  
• At 10.00 BST the same day, eurozone 1Q GDP figures are released. We expect Quarter-on-Quarter GDP for the region to come in at -2.1% and Year-on-Year to register at -4.1%

Sterling loses ground to the euro following central bank decisions

Sterling weakened against the euro yesterday following the Bank of England’s interest rate decision. After a rise earlier in the day, the pound lost ground against most major currencies after the Bank of England decided to maintain its key interest rate at a historical low of 0.5% but expand its asset buying programme by a further £50 billion. This will result in the central bank using £125bn of the £150bn of newly created money to buy further government and corporate bonds. This will continue for another 3 months until the end of August.

At its meeting in Frankfurt, the European Central Bank reduced its the interest rate by 25 basis points to 1.00%, a decision which was in line with expectations. The ECB also announced quantitative easing measures to boost the eurozone economy, planning to spend about £53.6bn buying covered bank bonds following widespread criticism that they haven’t been doing enough to revive the economy. ECB President Jean-Claude Trichet also stated that their decision to cut interest rates by 25 basis points was appropriate at this time, but did not rule out further cuts in the future. Some ECB policymakers do not favor a benchmark interest rate below 1%: Germany's Axel Weber is of the view that if the interest rate falls below 1%, banks will have no incentive to lend to each other, paralyzing interbank lending, while Italy's Lorenzo Bini Smaghi has also put forward a similar opinion.

On Monday, the European Commission sharply lowered the GDP outlook for the euro area, which is now expected to contract 4% in 2009 and 0.1% next year, compared with its interim forecast back in January when the commission said the euro area will contract 1.9% in 2009 and will grow 0.4% in 2010. The eurozone unemployment rate is predicted to rise to 11.5% from 9.9% this year. The International Monetary Fund expects the Eurozone to contract 4.2% this year.

In the UK, Producer Price Index data will be released at 09.30 BST today, and in Germany Industrial Production will be announced at 11.00 BST.

Sterling falls below $1.50 after Bank of England decision

Sterling fell sharply against the US dollar yesterday, retreating from a four-month high after the Bank of England extended its quantitative easing program. Surprising traders, who had not expected an announcement so soon, the central bank committed an extra £50 billion to its UK asset buying scheme. Most had expected the BoE to wait until the end of the initial three-month period to decide whether more funds would be required to increase market liquidity, and the markets reacted by selling the “riskier” pound for the perceived safe-haven of the greenback. In early trading the pound had strengthened against the dollar after Barclays announced healthy pre-tax profits of £1.37 billion, up 15% compared to a year earlier. After a week of strong London equity market performance, this news further buoyed investor sentiment that a global economic recovery may soon be underway. However, as the Bank of England’s interest rate decision approached at midday, several traders decided to offload sterling to reduce their exposure before the potentially market-moving announcement. The bank’s announcement that they were to hold interest rates at 0.5% was of little note to the markets, however its decision to extend its quantitative easing program surprised many market participants and, as a result, sterling fell heavily against the dollar at lunchtime yesterday.

The pound’s losses were further extended against the dollar yesterday evening as ten US banks were ordered by regulators to raise $74.6 billion to ensure they had sufficient capital should the recession get even worse. The so-called “stress tests” revealed that Bank of America, Wells Fargo, GMAC, Citigroup and Morgan Stanley will need to raise $33.9 billion, $13.7 billion, $11.5 billion, $5.5 billion and $1.8 billion respectively to offset a worst case economic scenario. The banks will be given until 9th November to raise the necessary capital, before being offered a further bailout by the US government. The release of the “stress test” results further extended the selling pressure on the pound, as investors became wary that a global economic recovery may still be some way off.

In early trading today the pound has pared some of yesterday’s losses, as investors continue to digest the results of the US “stress tests,” with some market participants feeling that they may have removed some of the uncertainty surrounding the US financial system. There are some important announcements due on both sides of the Atlantic today: in the UK, April Month-on-Month and Year-on-Year Input and Output Producer Price Index figures are out at 9.30 BST, whilst in the US, 13.30 BST sees the release of Month-on-Month and Year-on-Year Average Hourly Earnings data for April. Also at that time, last month’s Nonfarm Payrolls, Unemployment Rate and Average Weekly Hours are out in America.

Euro rises against US dollar following ECB decision

After initially losing ground early in the day, the euro rose strongly against the US dollar yesterday after the European Central Bank announced a cut in interest rates to 1% and its intention to embark on a quantitative easing program, which buoyed investor mood. President Jean-Claude Trichet’s announcement that the ECB is to buy £53.6 billion of euro-denominated covered bonds, used largely to finance mortgages in Europe, improved investor confidence that an economic recovery in the region may soon be underway. Trichet described the central bank’s plan to buy debt as “credit easing” at a press conference in Frankfurt, promising more details of the purchases next month. This puts the ECB on a similar path to the one already taken by the US Fed and the Bank of England. Following the ECB’s decision risk appetite improved and investors bought back into the higher-yielding euro, selling off the “safer” US dollar.

This bullishness continued into yesterday afternoon after better-than-expected US jobless claims data and German manufacturing figures further encouraged investor sentiment that the global economic slump is bottoming out. Elsewhere, the results of US government “stress tests” on nineteen major American banks did little to dent demand for the single currency. The US government ordered ten of the banks tested to raise $74.6 billion by November 9th in a bid to ensure they have sufficient capital should the recession get even deeper. Bank of America, Citigroup and Morgan Stanley were all ordered to raise more money, however JPMorgan Chase, Goldman Sachs and American Express will need to raise no additional capital. Interestingly, despite this being less than positive news, investors did not react to the results by buying into the perceived safe-haven of the dollar, with many instead viewing the results as clearing up a lot of the current uncertainty in the market. The euro finished the day up at 1.3388.

In early trading today the euro has continued its rise against the dollar, as investor appetite for risk continues. In the eurozone today, German Month-on-Month and Year-on-Year Industrial Productions data for March is released at 11.00 BST, whilst in the US, 13.30 BST sees the release of April’s Nonfarm Payrolls, Unemployment Rate and Average Weekly Hours figures. Also out at that time in America is the Month-on-Month and Year-on-Year Average Hourly Earnings for April.

New Zealand dollar makes gains following better employment figures

The New Zealand dollar managed to gain ground against the aussie and sterling yesterday, after stronger than expected jobs data and a pick up in risk appetite. Data revealed the unemployment rate rose to 5 percent, well under the 5.3 percent forecast. The kiwi also gained support after a relatively positive reaction to the US stress tests on banks saw equity markets climb higher. This led to the US dollar losing some of its safe haven appeal and more demand for higher yielding currencies.

Sterling falls below 2 against the aussie dollar for the first time since 1996

The Australian dollar dropped below the 2 mark against sterling yesterday, in the first time in nearly 13 years. Sterling fell sharply against the aussie as the BoE surprised markets by extending its quantitative easing program and committing more money to its asset buying scheme. Many in the market had expected the central bank to wait until its initial 3 month plan had finished before determining whether further liquidity was needed. The aussie continued to be well supported as its high yield attracted more investors as optimism over the financial sector grows. Some analysts have suggested that sterling’s value now represents the effect of quantitative easing and low interest rates and this does not suggest that the currency will weaken any further. However, if optimism over the recovery of the global economy continues demand for high yield currencies is also likely to grow. This means that over the shorter term the aussie is likely to be better supported over the pound.

European Central Bank cuts interest rate by 0.25%

In a scheduled announcement, the European Central Bank has cut their interest rate by 0.25% to set a new historic low of 1.00%. It was widely anticipated interest rates would be cut, as the central bank attempts to boost the eurozone economies in the face of the global economic slowdown. Indeed, recent forecasts released by the European Commission on Monday revealed that the region’s economy would shrink by 4% this year, more than double the contraction projected in January, and a further contraction of 0.1% in 2010.

We await any comment regarding quantitative easing within the eurozone as the President of the European Central Bank, Jean-Claude Trichet, is scheduled to make a speech shortly. Trichet has already indicated that the central bank could resort to purchasing assets with newly created money – similar to what is being seen in the UK and US at present. With falling interest rates and with quantitative easing on the cards, Caxton FX is expecting that the single currency may come under increased selling pressure in the coming months.

Bank of England keep interest rates on hold at 0.5%

In a scheduled announcement, the Bank of England has kept interest rates on hold at 0.5%. The central bank was widely expected to keep interest rates on hold following their unprecedented monetary easing since October last year. Despite the base rate remaining at a historic low, and a quantitative easing strategy already being deployed, credit conditions remain tight in the UK for business’s and individuals alike. We expect that the Bank of England will have used up the initial £75bn of new money by the end of this month and will begin the process of using the additional £75bn limit agreed by chancellor Alistair Darling.

We expect the pound to trade within a narrow range initially, as investors turn their attention to the European Central Bank’s interest rate decision due in approximately 45 minutes. In the longer term the Caxton FX analysts feel that the pound may gain some value against the single currency as economic news remains particularly soft in the eurozone. In addition, the European Central Bank has been slower with their interest rate cuts, and are expected to turn to more unconventional measures such as those currently being employed in the US and the UK.

Sterling continues march over weaker euro

The pound strengthened against the euro yesterday as continued strength on London equity markets improved investor sentiment that the UK may tentatively be coming out of recession. The FTSE 100 finished the day up 59.55 points yesterday at 4,396.49. In early trading, the euro strengthened slightly against the pound after better-than-expected Purchasing Managers’ index data released in the eurozone bolstered investor hopes that an economic recovery in the region may not be too far off. The index unexpectedly rose to 43.8 in April up from 43.1 the previous month. However, the single currency’s gains against the pound were capped to some extent following the release of weaker-than-expected Retail Sales data in the region. March’s Year-on-Year sales figures fell by 4.2%, down from -2.6% in February, whilst the Month-on-Month figure came in at -0.6%, markedly lower than the 0.1% increase analysts had predicted.

The euro’s gains were also capped yesterday by increased market speculation ahead of the European Central Bank and Bank of England’s interest rate decisions, announced later today. Most analysts are now agreed the ECB will cut its key rate by 25 basis points to 1%, however whether it will also adopt a quantitative easing program like the US Fed remains to be seen. This uncertainty weighed on the euro’s earlier gains against sterling, although the pound was unable to go into positive territory against the single currency because of investor speculation surrounding its own central bank, the Bank of England, who may announce an extension of its own quantitative easing program beyond the current £75 billion later today. In addition, better-than-expected data released by CIPS/Markit showed the UK service sector contracted in April at its slowest rate in eight months. April’s reading of 48.7 was the highest since August 2008 and was well ahead of the 46 analysts had predicted. Despite this, the euro went into lunch slightly up against the pound, with improved risk sentiment in the eurozone spurring its gains.

However, in the afternoon continued strength in London equities lifted the pound into positive territory against the euro, with retailers Next and the Co-operative Group both gaining ground after posting solid profits. The pound’s gains were also aided by increased investor wariness ahead of the ECB’s interest rate announcement later today, with some speculating that the central bank may be “behind-the-curve” in terms of stimulating the eurozone out of recession should they only now announce quantitative easing. As a result, investors sold the single currency in late trading yesterday, looking instead to what some perceive to be an undervalued pound. As a result, sterling finished the day up at 1.1348.

In early trading today the pound has continued its rise against the euro, following news that Barclays have posted a £1.37bn pre-tax profit for the first three months of 2009, further improving investor confidence in the UK’s chances of recovery. There are some very important announcements out on both sides of the English Channel today. In the eurozone, German Year-on-Year and Month-on-Month Factory Orders for March are out at 11.00 BST, whilst at 12.45 BST the ECB will announce its interest rate decision. Finally, ECB President Jean-Claude Trichet is due to give a speech at 13.30 BST. In the UK, the Bank of England’s interest rate decision is due at 12.00 BST.