Pound strengthens against the euro following eurozone GDP figures

The pound strengthened against the euro on Friday, finishing the day at 1.1246.

• A set of grim economic figures in the eurozone weighed on the single currency all day on Friday, as investor confidence that a recovery in the region may soon be underway diminished.
  
• German GDP data showed the country’s economy had contracted by 3.8% in the first quarter of 2009, the largest drop since the country started compiling quarterly data in 1970.
  
• Moreover, GDP in the eurozone fell by a much larger-than-expected 2.5% in the period, much faster than the US slowdown. Following a 1.6% contraction in the 16-country region in the final three months of 2008, Friday’s figure deepened what was already the worst recession in continental Europe since World War II.
  
• Sterling therefore gained on the view that whilst the UK economy remains weak, it appears the eurozone economy may be in worse shape, and could take longer to recover from the downturn. As a result, investors bought into the pound, dumping the single currency.
  
• In trading so far today the pound has continued its rise against the euro, as investors remain wary about buying into the single currency following Friday’s data.
  There are no major economic announcements due in either the UK or eurozone today.

Pound weakens against the US dollar

The pound weakened against the US dollar on Friday, finishing the day at $1.5177.

• Ongoing risk-aversion following some poor economic figures last week weighed on the higher-yielding pound, as investors looked to the perceived safe-haven of the greenback throughout the day.
  ,li>Much worse-than-expected first quarter GDP figures in the eurozone exacerbated this flight to safety as concern a global economic recovery may still be some way off weighed on “riskier” currencies like the pound. Figures released on Friday showed the contraction in the eurozone’s economy in the first three months of 2009 was a much larger-than-expected 2.5%, following a 1.6% fall in the last quarter of 2008.
  
• The figures dented general risk sentiment in the market, particularly after ECB President Jean-Claude Trichet’s announcement earlier last week that the global economy was at “an infliction point”. Investors reacted by selling off the pound, although it did remain above the psychological $1.50 level.
  
• In trading so far today the pound has continued its slide against the US dollar, as news that Lloyds Banking Group chairman Sir Victor Blank would step down before the bank’s 2010 AGM shook confidence in the markets.
  
• There are no major announcements in the UK today, however in the US the Treasury’s Timothy Geithner is due to speak at a Newsweek Magazine Event at 16.30 BST.

Euro falls sharply against the US dollar

The euro fell sharply against the US dollar on Friday, finishing the day at $1.3492.

• Much weaker-than-forecast first quarter GDP figures released in the eurozone on Friday reduced investor appetite for the single currency, as they opted instead for the perceived ‘safety’ of the greenback.
  
• Germany ’s export-led economy contracted by 3.8% in first three months of 2008, the largest fall since the country started recording quarterly data in 1970.
  
• Elsewhere, the Netherlands saw a 2.8% fall and Italy 2.4%, but the most dramatic decline was in Slovakia – the eurozone’s newest member – who recorded a staggering 11.2% fall in first quarter GDP. This reflected its dependence on car sales and exports to Germany.
  
• Overall, the 16-country region’s economy contracted by a much larger-than-expected 2.5% in the period, faster than the economic slowdown in the US, although analysts did say the figures may have been exaggerated by companies cutting production faster than demand fell, and running down inventories.
  
• Nevertheless, the figures induced a flight to the perceived safety of the greenback, as investors worried that the eurozone may have some way to go before its economic recovery begins.
  
• In trading so far today the single currency has resumed its slide against the US dollar as investors continue to digest Friday’s figures.
  
• At 16.30 BST today, the US Treasury’s Timothy Geithner is set to give a speech at a Newsweek Magazine Event. There are no major announcements in the eurozone today.

Australian dollar weakens as risk appetite falls

The Australian dollar weakened against sterling on Friday, as concerns over the timing of a recovery in the world economy saw investors become more risk averse.

• Recent optimism had driven the high-yielding aussie to multi-year highs against sterling.
  
• However, doubts over an imminent recovery in the global economy started to reverse much of those gains towards the end of last week.
  
• Stock markets fell across Asia overnight despite encouraging Consumer Confidence data from Japan, as uncertainty about a recovery in the world economy kept investors from buying riskier assets.
  
• Focus is likely to remain on economic data this week, with major inflation and retail sales data due out of the UK, while both the Bank of England and the Reserve Bank of Australia release minutes from their last meeting later this week.

New Zealand dollar remains on the back foot

The New Zealand dollar remained on the back foot on Friday, as increased risk aversion saw investors flee to the relative safe havens of the greenback and the yen.

• Weak retail sales from New Zealand late last week reinforced expectations that the Reserve Bank of New Zealand will cut rates again in the coming months.
  
• This is likely to continue to weigh on the kiwi, particularly given the ongoing gloomy economic outlook for the domestic economy.
  
• Stock markets across Asia fell overnight, despite better Consumer Confidence data from Japan, as uncertainty about a recovery in the world economy dissuade s investors from buying riskier assets.