Sterling gains against Polish zloty yesterday

Sterling has strengthened against the Polish zloty over the last week despite last month’s inflation figure coming in better-than-expected at 3.6%, down from 4% in April and below analyst’s predictions of 3.8%. This bolstered hopes of a Polish interest rate cut this month, following holds in April and May because of higher inflation and a weaker zloty. Yesterday, the Polish government approved a cautious 2010 budget outline which forecasted GDP growth of 0.5% and average annual inflation of 1%. Poland has suffered a sharp economic slowdown since Christmas, with GDP growth expected to reach just 0.2% this year, down sharply from 4.9% in 2008 but still better than most others in recession-ravaged eastern Europe. The 2010 Polish budget outline also envisaged unemployment to reach 13.8% by end-2010, up from around 11 percent now. All these factors combined, and the resulting speculation over how much money the Polish government will have to borrow next year, weighed on the zloty yesterday. Crucially, the centre-right government has not yet set the level of its 2010 budget deficit, which may prove critical for both Poland's eurozone entry ambitions and for the zloty and bond prices. In terms of the UK, improved sentiment surrounding its economy, prompted by more positive UK housing and industrial production data, has seen sterling gain against a basket of currencies recently, of which the Polish zloty is one.

Sterling closes at year-high against euro

Sterling hit a year-high against the euro yesterday, rising 0.94 cents (0.80%) to close the day at 1.1823.

• In early trading yesterday, sterling continued its rally against the single currency after weak eurozone employment figures prompted investors to question the health of the region’s economy. The region lost 1.22 million jobs during the first three months of 2009.
  
• An upbeat report released by the Confederation of British Industry also bolstered demand for the pound yesterday, after it predicted the UK economy would stabilise in the fourth quarter of the year, earlier than previous estimates, and that growth would return in early 2010.
  
• In trading so far today, sterling has pared some of yesterday’s gains as investors eye important data out later today.
  
• In the UK, CPI inflation figures are out at 09.30 BST today, whilst in the eurozone, German ZEW Economic Sentiment data and inflation figures are due at 10.00 BST.

Sterling falls over a cent against US Dollar

Sterling weakened by 1.22 cents (0.74%) against the US dollar yesterday, finishing the day at $1.6319.

• In early trading yesterday, sterling fell against the greenback after Russia’s finance minister expressed confidence in the US currency. Speaking at the G8 meeting over the weekend, Alexei Kudrin said the dollar’s role as the world’s primary reserve currency is safe for now.
  
• However, the greenback’s gains were cap ped to some extent after a report by the CBI further improved confidence in the UK economy. It forecasted a return to growth at the start of 2010.
  
• Nevertheless a fall on UK equities kept up the downward pressure on sterling in late trading. The FTSE 100 eventually finished the day down 115.94 points (2.61%).
  
• In trading so far today, the pound has risen slightly against the dollar as investors consider recent data.
  
• In the UK, CPI data is out at 09.30 BST today, whilst in the US Building Permits data is due at 13.30 BST.

Euro down over 2 cents vs. USD

The euro weakened considerably against the US dollar yesterday, dropping 2.12 cents (1.51%) to finish at $1.3802.

• In early trading yesterday, the euro weakened by over a cent against the dollar after Russia’s finance minister reaffirmed the greenback’s status as the world’s premier reserve currency. Russia holds roughly 30% of its $404.2 billion foreign exchange reserves in US Treasuries, making it the fifth-largest holder of US government debt.
  
• Also contributing to the downward pressure on the single currency yesterday were first-quarter eurozone employment figures, which revealed a 1.22 million job loss over the period.
  
• So far today, the euro has pared some of the losses it made yesterday as investors continue to digest recent economic announcements.
  
• In the eurozone, German ZEW Economic Sentiment data and inflation figures are out at 10.00 BST today, whilst in the US Building Permits data is due at 13.30 BST.

Sterling hits two-week high vs. aussie

The Australian dollar reached two-week lows against sterling yesterday after equity markets and commodity prices fell.

• The high yielding and commodity based aussie was one of the hardest hit as investors again became risk averse.
  
• However, confidence in an imminent UK recovery still remains shaky, particularly after IMF chief Dominique Strauss-Kahn stated that although there were signs that the world economy may be slowly crawling out of recession, the worst of the economic crisis was still not over.
  
• Today investors will eye key UK inflation data for further direction.

Kiwi down against sterling as risk appetite eases

The New Zealand dollar dropped against sterling yesterday as falling equities markets hit demand for higher-yielding currencies.

• The Kiwi was also hurt by manufacturing data which suggested that the local economy in the first-quarter is likely to have again contracted sharply.
  
• However, the Kiwi’s losses were contained by last week’s central bank decision to keep interest rates on hold.
  
• The Kiwi's direction in the next few days is likely to be guided by broader market movements.