Euro hits highest level against US dollar this year

The euro hit its highest level against the US dollar since New Year's eve today, as improved risk appetite swept the market. In particular, strong demand for US debt after a series of successful US Treasuries auctions aided the single currency’s rise.

In addition, healthy rises on European equity markets also weakened demand for the safe-haven of the dollar as investor demand for riskier assets increased.

Kiwi stregthens on back of budget

The New Zealand dollar rose broadly yesterday, after the government budget caused ratings agency Standard and Poor’s to revise its outlook on New Zealand's credit rating, from "negative" back to "stable".

• This was a big reprieve for the kiwi, and was largely due the government’s decision to scrap tax cuts in a broader debt reduction plan.
  
• The government also stated that it did not expect the economy to return to growth until the last quarter of this year.

Aussie rebounds against sterling

The Australian dollar rebounded against sterling yesterday, after the disclosure of Britain's financial regulators’ “stress tests” on banks caused renewed jitters in the markets over the health of the UK financial sector.

• The results had many in the market reassessing their views about the UK's banking sector’s ability to cope with a sustained economic downturn.
  
• Sterling was also weighed down by retail sales data, which revealed a bigger than expected fall in sales for April. Retailers are expecting further falls next month.
  
• This is perhaps a reminder that, despite optimism from some areas that the UK economy may be bottoming out, there is almost certainly going to be further weak economic data over the next few months.
  
• At the moment optimism versus economic reality is likely to perpetuate further volatility.

Euro finishes up against the US dollar

The euro strengthened against the US dollar yesterday by 1.19 cents (0.86%), closing the day at $1.3943.

• In early trading yesterday the euro strengthened against the greenback, as investors bought back into the riskier single currency following recent falls.
  
• Appetite for the riskier euro was also bolstered after the release of better-than-expected Core Durable Goods data in the US. It came in at 0.8%, a considerable improvement on the -2.7% registered last month, and way ahead of the -0.4% expected. Elsewhere, US Unemployment Claims figures also improved global risk sentiment after it came in at 623k for May, well ahead of the 628k forecasted, and the 636k reading the previous month.
  
• However, weaker-than-forecast US New Home Sales data capped the euro’s gains to some extent after it came in at 352k this month, well below the 363k expected, but slightly up on the 351k recorded in April.
  
• In trading so far today the euro has risen back above the psychological $1.40 level, as appetite for safe-haven currencies like the greenback continues to subside.
  
• There are no major announcements due in the eurozone today, whilst at 13.30 BST in the US Preliminary GDP (QoQ) figures are out.

Pound finishes slightly down vs. greenback

The pound weakened slightly against the US dollar by 0.1 cents (0.06%) yesterday, to finish the day at $1.5943.

• Sterling weakened against the greenback in early trading yesterday, after Bank of England Monetary Policy Committee member David Blanchflower was quoted as saying investors should not take the pound’s recent rally as proof the global recession has bottomed out: “My worry is that there can be many false dawns and we shouldn’t just assume that everything is over.”
  
• Adding to the downward pressure on the pound mid-morning was the release of weaker-than-forecast CBI figures, which came in at -17 for May, much lower than the -10 analysts expected, and a considerable fall from the 3 registered last month, although this figure may have been skewed due to a late Easter.
  
• However, the pound’s losses were capped to some extent following the release of better-than-expected Core Durable Goods and Unemployment Claims data in the US. The former came in at 0.8%, a considerable improvement on the -2.7% registered last month, whilst the latter registered at 623k, well ahead of the 628k analysts had been forecasting.
  
• However, surprisingly weak US New Home Sales figures halted sterling’s fight back mid-afternoon, after it came in at 352k this month, well below the 363k expected. Nevertheless, the pound only finished slightly down on the day.
  
• In trading so far today the pound has strengthened against the dollar, rising back above the $1.60 level as positive sentiment about the UK’s chances of economic recovery continues.
  
• There are no major announcements due in the UK today, however in the US Preliminary GDP (QoQ) figures are due at 13.30 BST.

Sterling finishes down against the euro

The pound weakened by 1.02 cents (0.88%) against the euro yesterday, closing the day at 1.1435.

• In early trading yesterday sterling weakened against the euro, as traders booked profits following significant gains in recent days. Comments from outgoing Bank of England Monetary Policy Committee member David Blanchflower also weighed on the pound early on, after he was quoted as saying the world should not assume the worst of the global economic crisis is over.
  
• Worse-than-expected CBI Realised Sales data out mid-morning also contributed to the downward pressure on sterling. May’s reading of -17 was much lower than the -10 analysts had been expecting, and a significant fall from the 3 registered last month.
  
• In trading so far today sterling has strengthened against the single currency, as investors start to look ahead to next week’s important interest rate decisions in the eurozone and UK. Some analysts now believe the European Central Bank to be behind-the-curve in terms of their monetary policy so, depending what they announce next week, the pound could gain ground against the euro over the next few weeks.
  
• There are no major announcements due in the eurozone or the UK today.