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.