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.