Pound weakens after King's comments

The pound weakened by 0.76 cents (0.65%) against the euro yesterday to close the day at 1.1701.

• In early trading yesterday sterling weakened against the euro after London equity markets turned lower initially.
  
• Bank of England Governor Mervyn King’s dovish assessment on Wednesday also pushed sterling lower mid-morning, after he said the UK’s economic recovery could still be a ‘long, hard slog’ despite more encouraging data recently. This led investors to believe the central bank had no intention of tightening its policy anytime soon.
  
• In addition, the Organisation for Economic Cooperation and Development’s bleak prediction the day before that Britain’s economy would contract 4.3% this year and stagnate in 2010 kept up the downward pressure on sterling.
  
• In trading so far today the pound has dipped slightly lower against the euro as investors continue to digest some important announcements out this week.
  
• There are no major announcements due in the UK or eurozone today.

Sterling weakens after key announcments

Sterling weakened by 0.35 cents (0.21%) against the US dollar yesterday, finishing the day at $1.6369.

• In early trading yesterday the pound weakened against the dollar after the US Fed’s monetary policy decision the day before was generally viewed positively by the markets. Its decision not to expand its asset purchase program was taken as a sign the deep US recession was easing. However, its clear indication that interest rates would stay low for some time dampened expectations of early rate rises, capping the greenback’s gains to some extent.
  
• Also weighing on the pound were Mervyn King’s cautionary comments on Wednesday which, together with a gloomy OECD report about Britain’s growth prospects, reduced investor appetite for sterling-denominated assets.
  
• The dollar received an added boost mid-afternoon after a government report showed the number of US workers filing new claims for jobless benefits unexpectedly rose last week. This prompted several investors to buy into the perceived safe-haven of the greenback.
  
• In trading so far today the pound has risen slightly against the greenback, as investors continue to digest this week’s economic releases.
  
• There are no major announcements due in the UK or US today.

Volatile day ends with euro up

The euro strengthened by 0.59 cents (0.42%) against the dollar yesterday to finish the day at $1.3986.

• In a choppy day’s trading yesterday the euro first weakened then strengthened against the dollar, as investors digested Wednesday’s major announcements.
  
• The European Central Bank’s 442 billion euro injection of one-year funds into money markets on Wednesday received a mixed reaction yesterday, after a record 1,121 banks took up their offer.
  
• Similarly, the US Fed’s decision to leave interest rates on hold and not extend their quantitative easing program produced equal uncertainty in the market. Some took their decision to ‘wait-and-see’ as a positive sign the recession was easing, whereas others were disappointed that the bank effectively ruled out interest rate rises for the rest of this year.
  
• These differing viewpoints resulted in a volatile day’s trading, with both currencies swinging into positive and negative territory. The dollar’s cause was helped mid-afternoon, however, after worse-than-forecast US jobless data reduced investor’s appetite for risk. Nevertheless, the euro finished the day slightly up.
  
• In trading so far today the euro has once again broken through the $1.40 barrier, as investors continue to pick over this week’s economic announcements.
  
• There are no major announcements due in the US or eurozone today.

Aussie strengthens vs. pound for third straight day

The aussie strengthened against the pound for the third straight day yesterday, after gains on Asian stock markets and rises in the price of oil and gold buoyed demand for higher-risk currencies.

• Rises in the price of gold and oil, Australia’s third- and fourth-most valuable commodity exports respectively, drove the aussie’s gains yesterday.
  
• In addition, dovish comments from the Bank of England Governor Mervyn King on Wednesday, together with a gloomy report from the OECD the same day, downgrading the UK’s growth prospects, hit the pound.
  
• There are no major announcements due in either Australia or the UK today so traders will take their lead from broader market movements.

Kiwi strengthens despite poor GDP figure

The kiwi again strengthened against sterling yesterday, despite worse-than-expected New Zealand first-quarter GDP figures overnight.

• New Zealand’s statistics bureau reported a fall in GDP by 1% last quarter, far worse than the 0.7% analysts had been expecting. This stirred speculation the Reserve Bank of New Zealand may cut interest rates further from a record low of 2.5%.
  
• Nevertheless, the kiwi strengthened after gains on Asian stock markets overnight which, together with downbeat comments from Bank of England policymakers, made the kiwi more attractive to investors than sterling.
  
• There are no major announcements due in either the UK or New Zealand today, with today’s trading likely to be dictated by reaction to last night’s New Zealand GDP figure.