Polish zloty finishes down vs. GBP last week, pars gains this week

The pound weakened against the Polish zloty last week as concerns over the UK’s political situation intensified. The prospect of disastrous results for Labour in the European and local elections prompted six ministerial resignations from Prime Minister Gordon Brown’s cabinet as he struggled to hold onto the party leadership. The local currency rarely benefits from political uncertainty, so disunity in the Labour Party weighed heavily on the pound late last week. The zloty’s gains were also extended after the Polish government announced its intention to lower the country's budget deficit once its economy starts to recover from a slowdown in growth. Poland's Prime Minister Donald Tusk announced last Thursday that he wants to avoid increasing taxes when reviewing the budget plan for 2009, saying he "doesn't expect the increased budget deficit will be too drastic. These are things we would like to avoid." This provided a welcome boost for investor looking at Polish assets and they responded by buying into the zloty. However, so far this week, the pound has recouped some of the losses it endured as the UK’s political situation looks to have stabilised. Strong gains on London equity markets recently have also improved investor sentiment in the UK’s chances of recovery.

Sterling continues rise against euro

The pound strengthened 1.08 cents (0.94%) against the euro yesterday to close the day at 1.1545.

• In early trading yesterday, sterling strengthened against the euro following the news that Standard & Poor’s had downgraded Ireland’s credit rating for the second time in less than three months. The ratings agency cited the fiscal costs to the government of supporting the Irish banking system as the reason for downgrading the country’s rating from AA+ to AA.
  
• Sterling strengthened yesterday despite the results of the European election, which piled further pressure on Prime Minister Gordon Brown after Labour endured a humiliating defeat.
  
• In trading so far today, sterling has strengthened against the euro following the news that Gordon Brown’s leadership will not be imminently challenged. He met with the Parliamentary Labour Party last night and appears to have diffused his critics, for now.
  
• There are no major announcements due in the UK today, whilst in the eurozone, German industrial production figures are out at 11.00 BST.

Sterling finishes up against the US dollar despite early losses

Sterling rose against the US dollar by 0.73 cents (0.46%) yesterday, finishing at $1.6051.

• In early trading yesterday, the pound fell by over 1.5 cents against the greenback after European election results revealed crumbling support for the Labour Party. The resulting pressure on Prime Minister Gordon Brown hit sterling hard, with the markets uncertain as to whether he will remain in office for much longer.
  
• However, the pound trimmed losses in late trading as some traders booked profits from selling in the pound over the past few days, which have sent it further away from the seven-month high it hit last week.
  
• In trading so far today, the pound has risen against the dollar after the news Gordon Brown will not be facing an imminent challenge for his leadership. The political uncertainty over the last week has weighed heavily on the pound so traders will be delighted the situation appears to be resolved.
  
• There are no major announcements due in the UK or US today.

Euro finishes down after Ireland's credit downgrade

The euro weakened by 0.68 cents (0.49%) against the US dollar yesterday to finish the day at $1.3899.

• In early trading yesterday, the euro weakened against the greenback after a leading ratings agency downgraded Ireland’s sovereign rating from AA+ to AA. Standard & Poor’s said it believed the Irish government’s ability to service its fiscal debts was the primary factor behind its decision.
  
• The dollar also benefitted from strong US employment data released on Friday, which came in well ahead of forecast, therefore fuelling speculation that the Fed may raise interest rates early next year.
  
• So far today, the euro has recouped some of the losses it made against the greenback yesterday as investors eye important German industrial production figures at 11.00 BST. There are no major announcements out in the US today.

Aussie down despite UK political turmoil

The Australian dollar lost ground against Sterling yesterday, despite a steep fall in support for the ruling Labour party in European elections causing widespread political instability.

• Doubts over the Labour government and the leadership of Prime Minister Gordon Brown have added to concerns over the UK economy.
  
• Traders however are willing to back Sterling on dips, as seen on Friday, and managed to claw back some ground on the Aussie which was hit by falls in demand for investor risk. Falls on Asian stock markets overnight did little to improve investor risk appetite.
  
• The continuing uncertainty over when the world economy will recover is likely to continue driving direction, with more sporadic data likely to result in the rate ebbing and flowing in the short to medium term.

Kiwi finishes down against sterling

The New Zealand dollar lost ground against Sterling yesterday after a further credit downgrade in Ireland and weaker equity markets saw a fall in demand for riskier currencies.

• Falls on Asian stock markets and a second downgrade of Ireland’s sovereign credit rating in three months reduced investor appetite for riskier currencies like the Kiwi.
  
• Investors remain cautious ahead of a number of key local releases later in the week. This starts with 1Q Terms of Trade later today and the RBNZ rate decision due on Wednesday.
  
• The RBNZ's decision may not provide very much support for the Kiwi with analysts split over whether they will cut rates this time round.