US rate and quantitative easing program left unchanged

In a scheduled announcement, the US Fed left interest rates on hold and decided not to extend its quantitative easing program last night. It also repeated that that borrowing costs would remain exceptionally low for some time to come. Its decision to ‘wait-and-see’ on its quantitative easing program was based on the fact it believed the pace of economic contraction was slowing. This news was taken positively by US investors and has so far buoyed the dollar against sterling, however that is as much to do with Bank of England Governor Mervyn King’s dovish comments last night, as the Fed’s announcement. Struggling London equities have also aided the greenback’s ascent this morning.

Sterling strengthens despite King's dovish comments

Sterling strengthened by 0.91 cents (0.78%) against the euro yesterday to close the day at 1.1777.

• In early trading yesterday the pound strengthened against the euro, as investors speculated that Bank of England Governor Mervyn King would say the UK’s recession is bottoming out in his testimony to the Treasury Committee later that day. When it came, however, King said he was ‘more uncertain now than ever’ about the UK economy, forcing sterling lower in late trading as some traders booked profits from earlier gains.
  
• Elsewhere, investors broadly shrugged off disappointing CBI realised sales data out mid-morning, which showed no change in the pace of decline from May to June. This was in line with analyst expectations, however.
  
• In trading so far today the pound has dipped against the single currency as investors continue to digest yesterday’s announcements, including a downbeat report about the UK’s chances of recovery by the OECD.
  
• There are no major announcements due in the UK or eurozone today.

US Dollar strengthens vs. GBP after Fed decision

The pound weakened by 0.48 cents (0.29%) against the US dollar yesterday, finishing the day at $1.6404.

• In early trading yesterday sterling rose against the greenback, as the US currency came under broad selling pressure in the build-up to the US Fed interest rate decision later that day. Investors were convinced the Fed would quell recent speculation of a possible interest rate rise later this year, a move which analysts believe would sting the dollar.
  
• Sterling’s rise was little affected by CBI realised sales data out mid-morning, which revealed UK retail sales fell at the same pace as the previous month.
  
• However, dovish comments from Bank of England Governor Mervyn King capped sterling’s gains in late trading after he said he had genuine concern about how quickly the UK economy would pick-up from the recession.
  
• Finally, the Fed’s decision to leave interest rates on hold and not extend its quantitative easing program because of a slowing in the pace of economic contraction was taken positively by investors, who bought into the greenback as a result.
  
• In trading so far today the pound has risen against the dollar as investors continue to pick over yesterday’s announcements.
  
• There are no major announcements due in the UK today, whilst in the US there are three notable economic releases: Unemployment Claims and annualised first-quarter GDP data is out at 13.30 BST, whilst at 15.00 BST Fed Chairman Ben Bernanke is due to testify in front of a House committee.

Fed's decision hits euro vs. USD

The euro weakened by 1.49 cents (1.06%) against the US dollar yesterday to close the day at $1.3927.

• In early trading yesterday the euro fell against the dollar, after the European Central Bank announced it would lend 442.24 billion euros to banks in its first ever one-year refinancing operation.
  
• After briefly heading into positive territory, the single currency then fell against the dollar despite a US government report showing durable goods orders unexpectedly rose 1.8% in May.
  
• Finally, the US Fed’s decision to leave interest rates on hold and not extend its quantitative easing program plunged the single currency further into the red. Its decision to ‘wait-and-see’ after a slowing in the pace of economic decline recently prompted traders to buy into the greenback.
  
• In trading so far today, the euro has risen against the dollar as investors continue to dissect yesterday’s important announcements.
  
• There are no major announcements due in the eurozone today, whilst in the US Unemployment Claims and annualised first-quarter GDP data is out at 13.30 BST. At 15.00 BST Fed Chairman Ben Bernanke is set to testify in front of a House committee.

Aussie gains ground after CB data

The Australian dollar gained further ground against sterling yesterday, posting gains for the third straight day as investors bought back in to higher-yielding currencies.

• A recovery on the FTSE and a rally on the Dow Jones yesterday encouraged investors to shun safe haven currencies and buy back in to higher yielders, such as the aussie and kiwi.
  
• The aussie also gained support overnight from the release of the Conference Board Index, which increased in April for the third consecutive month.
  
• The aussie dollar is likely to remain attractive to investors for some time, as Australia currently has the highest yield amongst all the developed countries, with the RBA unlikely to cut interest rates further.

Kiwi up after BoE Governor's comments

The kiwi strengthened against the pound yesterday, after poor retail sales data and dovish comments from the head of the UK’s central bank reduced investor appetite for sterling.

• Sterling weakened in early trade against the kiwi yesterday after CBI realised sales data revealed no slowing in the pace of decline in UK retail sales from the previous month.
  
• These falls were extended after Bank of England Governor Mervyn King said he was ‘more uncertain now than ever’ about the UK economy.
  
• Trade today will be dictated by anticipation of New Zealand’s latest GDP figure, released tonight.