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.