Pound finishes up over 1.5% against the euro

The pound strengthened markedly against the euro yesterday, rising by 1.82 cents (1.59%) to finish the day at 1.1612.

• In early trading yesterday, the pound strengthened against the euro as strong equity market performance buoyed investor confidence that the UK’s recession may be bottoming out. London’s FTSE 100 was up 1.5% mid-morning.
  
• The pound also strengthened on the back of improved UK housing data released by property company Hometrack. It revealed that for the first time in 20 months there has been no month-on-month decline. However, house prices are still 9.6% down on a year ago.
  
• The UK currency also gained on the news that the recession-battered manufacturing industry may be ‘close to turning a corner’ according to a survey released by The Chartered Institute of Purchasing and Supply. It showed that activity last month was at its highest level in a year, as it posted a reading of 45.4 in May, still below the neutral mark of 50 but an improvement on the revised 43.1 recorded in April.
  
• Strength on London equities continued to drive sterling higher yesterday afternoon. The FTSE 100 eventually finished the day up 88.25 points.
  
• In trading so far today, the pound has pared some of the gains it made yesterday as investors start to focus on Thursday’s interest rate decisions.
  
• There are no major announcements due in the UK or eurozone today.

Sterling soars to seven-month high against US Dollar

Sterling soared 2.56 cents (1.58%) against the US dollar yesterday to close the day at $1.6443.

• In early trading yesterday, sterling rose by over two cents against the greenback to hit a seven-month high as investor demand for riskier assets increased.
  
• Improved Chinese manufacturing data released overnight drove European equities higher mid-morning, prompting investors to look beyond the safe-haven of the dollar.
  
• Furthermore, better-than-expected UK housing and manufacturing data also drove sterling’s gains. Hometrack’s survey showed house prices in England and Wales were unchanged in May, the first time in 20 months there has been no month-on-month fall, whilst the headline Manufacturing PMI index came in at 45.4 in May, comfortably ahead of the 44.0 predicted.
  
• Sterling’s gains were further extended yesterday afternoon after the release of US ISM manufacturing data, which showed a slowing in the sector’s rate of contraction. It came in at 42.8, up from 40.1 last month.
  
• Strong rises on UK equity markets also fuelled sterling’s gains late yesterday. The FTSE 100 eventually finished the day up 88.25 points to close at 4506.19.
  
• In trading so far today, the pound has retreated from yesterday’s highs as investors turn their attention to Thursday’s Bank of England interest rate decision.
  
• There are no major announcements due in the UK today, whilst in the US, Pending Home Sales (MoM) are out at 15.00 BST.

Euro finishes very slightly down against US Dollar

The euro weakened slightly against the US dollar yesterday, falling 0.01 cents (0.01%) to close the day at $1.4157.

• In early trading yesterday, the euro rose against the greenback as investor appetite for riskier currencies continued.
  
• Strong gains on European equity markets mid-morning, buoyed by improving economic data, encouraged investors to look beyond the safe-haven of the dollar. The euro’s gains were also extended following the release of better-than-expected final eurozone PMI manufacturing index figures, which climbed to a seven-month high of 40.7 in May, up on the provisional estimate of 40.5.
  
• The single currency’s gains were also buoyed by the release of US ISM manufacturing data, which showed a slowing in the sector’s rate of contraction. It came in at 42.8, comfortably ahead of the 42.2 expected, further improving sentiment that a global economic recovery may soon be underway.
  
• However, the euro ran out of steam in late trading yesterday as some traders booked profits. It eventually finished the day very slightly down.
  
• In trading so far today, the euro has weakened against the greenback as investors brace themselves for the release of important US housing data, a core economic driver, later today. Pending Home Sales (MoM) are out 15.00 BST. There are no major announcements out in the eurozone today.

Investors favour pound over aussie

The pound gained over a cent in value against the Australian dollar yesterday as improved risk appetite in the market favoured the higher risk pound.

• News that China’s manufacturing sector expanded in May for the third consecutive month boosted optimism in markets.
  
• The FTSE 100 had a positive day, following earlier gains in Asia, finishing the day 2% up as investors risk appetite grew.
  
• As widely forecast, the Reserve Bank of Australia kept their interest rate on hold at 3% overnight – the central bank did however suggest that there is scope for further easing of interest rates in the future, which may put the Aussie under selling pressure.

Sterling finishes slightly up against the Kiwi

Sterling made modest gains against the New Zealand dollar yesterday, as the pound gained from broader market movements.

• Global equity markets rose yesterday as investors speculated that the worst of the recession may be behind us, and that a bull market may be returning.
  
• The pounds gains were limited however as commodity prices continued to firm – commodities account for 70% of New Zealand’s exports.
  
• The Kiwi may come under selling pressure in the medium term as investors speculate that last month's gains may have come too quick.