Pound strengthens against the euro

The pound strengthened against the euro by 0.35 cents yesterday, finishing the day at 1.1350.

• In early trading yesterday the pound strengthened against the euro, following news that UK Financial Investments (UKFI), which manages the UK government’s stakes in RBS and Lloyds Banking Group, had sounded out investors who may be interested in buying some of its holdings in the part-nationalised lenders.
  Sterling’s gains were also aided by continued strength on London equity markets, with the FTSE up 0.5% in early trade.
  
• However, the pound’s early gains were capped after the release of Year-on-Year Consumer Price Index data mid-morning. April’s reading of 2.3% was worse than the 2.4% forecast and the 2.9% recorded in March, prompting some investors to question the UK’s chances of a timely economic recovery.
  
• Elsewhere, much better-than-expected German ZEW Economic Sentiment figures released in the eurozone also allowed the euro to claw back some of sterling’s early gains. It registered at 31.1 for May, far ahead of the 20.0 analysts had forecast and the 13.0 recorded last month.
  
• After a solid day’s trading, London equities lost steam late on, causing the pound to weaken off slightly. The FTSE 100 finished the day up 0.8%.
  
• So far today sterling has resumed its rise against the single currency, as the deep pessimism surrounding the UK’s economic recovery continues to ease.
  
• There are no important economic announcements due in the eurozone today, however in the UK the Bank of England are releasing the Minutes from their last policy meeting at 09.30 BST.

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.

Euro rises against US dollar as risk aversion falls

The euro strengthened against the US dollar by 0.68 cents yesterday, finishing the day at 1.3628.

• In early trading yesterday the single currency rose against the US dollar, as risk aversion in the market continued to diminish. Monday’s strong equity market performance carried over to early trade yesterday, with the FTSE 100 up 0.5% mid-morning.
  
• These early gains by the euro were further extended following the release of better-than-expected German ZEW Economic Sentiment data released mid-morning. It registered a rise to 31.1 in May from 13.0 last month, buoying investor confidence that an economic recovery in the eurozone may soon be underway. Importantly, the reading was also well ahead of analysts’ forecasts of 20.0.
  
• However, weaker-than-forecast Building Permit figures released in the US significantly reduced the single currency’s gains mid-afternoon. April’s reading of 0.49m was much lower than the 0.52m recorded last month, and also the 0.53m analysts had forecast. This induced an immediate flight to safety, with some investors offloading the “riskier” euro in favour of the greenback as they worried a global economic recovery may yet be some way off.
  ,li>Nevertheless, the euro closed the day slightly up against the dollar as strong European equity market performance continued to ease risk aversion in the market.
  So far today the single currency has edged slightly higher against the dollar as investors continue to speculate that the eurozone may be on the cusp of an economic recovery.
  ,li>There are no major economic announcements due in the eurozone today, whilst in the US, the Fed’s Minutes from their last policy meeting are due at 19.00 BST.

New Zealand dollar holds its ground

The New Zealand dollar managed to hold its ground against sterling yesterday, but lost further ground to the aussie.

• The kiwi found support from investors seeking high yielding currencies on the back of renewed optimism that the global recession may be ending.
  
• However, with the Reserve Bank of Australia giving indications that it is likely to keep rates on hold, this suggests that the interest rate differential between the kiwi and the aussie may widen even further. This obviously gives the aussie the upper hand in attracting foreign investors.

Australian dollar holds its ground against the pound

The Australian dollar held its ground against sterling yesterday, as the high yielding aussie continues to benefit from an upturn in investor risk appetite.

• Optimism over the financial sector was given a boost as rumours that the institution managing the UK government’s stake in banking giants Lloyds and Royal Bank of Scotland were sounding out investors for a possible sell off.
  
• However, data out yesterday reminded markets that the UK economy was still in a bad way, with consumer price index inflation rising by only 0.2 percent for the month, bringing the annual rate of inflation down to 2.3 percent, from 2.9 percent in March.
  
• Although currency markets are backing sterling to outperform the US dollar and the euro going forward, any rebound against the aussie may take slightly longer.
  
• The Australian economy is in a much better position to recover from the world recession, as it has the highest yield in the developed world and a recovery in world growth would only support its commodity based exports.