Sterling gains support against the euro

Sterling rose against the euro on Friday, gaining support after the release of better-than-expected services data. The market largely ignored earlier data from Halifax that showed British house prices fell 17.5 percent in the three months to March from a year ago, which was in direct contrast to a Nationwide survey on Thursday that showed UK house prices unexpectedly rose 0.9 percent in March, the first rise since October 2007.

The euro was also undermined on Friday by speculation about the European Central Bank taking non-standard measures to ease the recession, e.g. quantitative easing. ECB President Jean-Claude Trichet signalled there may be another rate cut in May as well as a decision on non-standard measures.

There are no significant economic releases due from the UK today, while the eurozone will release Retail Sales and Producer Price Index data this morning.

Pound strengthens over the US dollar amid improved sentiment

The pound strengthened over the US dollar on Friday by 1.17 cents to close the day at the 1.4840 level after investors’ confidence improved on hopes that the global economy may be stabilizing. With this confidence, there was a fall in safe haven demand for the dollar despite a barrage of negative economic data coming out of the US - 633,000 people lost their jobs in March and unemployment hit a 25-year high of 8.5%. Furthermore, average hourly earnings stayed the same in March as they were in February, whilst average weekly hours fell in March. In the UK, Halifax house price data showed that property prices fell by 1.9% in March and 17.5% in April, whilst the purchasing manager’s index services showed that conditions in the British service sector improved.

In today’s trading the pound has continued to improve, rising above 1.49 and hitting a two month high as investors remain confident. There are no major economic announcements in either the UK or the US today.

Euro strengthens against the dollar over the weekend

The euro strengthened against the dollar over the weekend following last week’s G20 meeting and the decision by the ECB to cut interest rates by 0.25% rather than the anticipated 0.5% cut. ECB President Jean-Claude Trichet stated that the central bank could lower interest rates further, possibly at their next meeting, thus allowing them more room to act, as opposed to the Bank of England and Federal Reserve who have already cut their interest rates to near zero. This announcement resulted in a renewed appetite for riskier currencies, which undermined the dollar.

Many analysts are expecting a positive week for the euro, with some predicting it could hit the $1.30 mark. However, if any grim economic data is released this week it could result in investors flocking to the safe haven of the dollar and subsequently weakening of the euro.

There are several announcements taking place in the eurozone today, including Producer Price Index and Retail Sales. There are no significant announcements taking place in the US today.

New Zealand dollar made strong gains

The New Zealand dollar made strong gains late on Friday as improved optimism over the G20 plans to revive the global economy pushed it past key technical levels. Data revealed an increased deterioration in the New Zealand government’s fiscal position in February, largely due to investment losses and lower tax revenues. However, markets largely ignored this with broader global market movements driving the currency.

Australian dollar remained off recent highs

The Australian dollar remained off recent highs against sterling over the weekend, as recent optimism from the G20 meeting was checked by more weak employment numbers from the US. This reinforced the fragile nature of the global economy and suggested that even if it is starting to recover, further bouts of poor data and volatility are still likely. However, the pound did gain some support from better than expected housing data and figures showing that the rate of contraction in the British service sector was at its slowest in 6 months. Investors will now start to focus on the interest rate decision due from the Reserve Bank of Australia tomorrow.