Pound strengthens against the US dollar in choppy trade

The pound strengthened against the US dollar in a choppy day’s trading yesterday, reaching a two-week high as risk appetite returned and share prices gained. Investors’ hopes that the worst of the global economic slowdown could be over helped London’s blue chips reach their highest point for nearly three months, with the FTSE 100 adding 1.3% to Wednesday’s 2% gains. In early trading, the pound strengthened against the greenback after better-than-expected consumer confidence data released by GfK/NOP showed a three point rise to -27 this month, its third consecutive monthly rise and its highest level since April 2008.

Data released by Nationwide in the UK showed house prices resumed their decline in April. The mortgage lender said prices were 15% lower than this time last year, with the average house price falling 0.4% on the month compared with a surprise rise of 0.9% in March. But despite that news the pound continued to strengthen against the dollar yesterday morning, buoyed by strong performance on equity markets and the broad return of risk appetite following the Fed’s tentatively upbeat policy statement the previous evening. It appears markets largely shrugged off Wednesday’s worse-than-expected US GDP figure, with news about swine flu also taking a backseat, as investors looked beyond the safe-haven of the dollar to invest their capital.

However, soon after lunchtime a raft of important announcements in the US effectively wiped out sterling’s earlier gains, as investor wariness over the state of the global economy returned. Worse-than-expected Personal Spending data for March and Year-on-Year and Month-on-Month Core Personal Consumption Expenditure Prices index results produced some jitters in the market, therefore increasing demand for the perceived safe-haven of the greenback away from the riskier pound. Also, the announcement late in the day that Chrysler had filed for bankruptcy protection as part of a deal with Italian firm Fiat also reduced sterling’s earlier gains. The US carmaker will enter Chapter 11 bankruptcy under the US code, which will allow it to restructure without having to enter into liquidation. As a result, it will still be able to operate as a going concern as it clears up its remaining obligations ahead of a formal merger with Fiat. Although this news did reduce investor appetite for riskier currencies like the pound as investors feared there may be more bad news around the corner, the pound still finished the day up at $1.4787 on the back of strong equity market performance and the better-than-expected consumer confidence data released earlier in the day.

In early trading today, the pound has continued its steady rise against the greenback on improved risk appetite. At 9.30 BST, UK Purchasing Manager Index Manufacturing for April is released, whilst in the US Factory Orders figures for March and ISI Manufacturing data for April are due at 15.00 BST.