Dovish Trichet comments weaken euro

The pound strengthened by 0.54 cents (0.46%) against the euro yesterday to close the day at 1.1704.

• In a volatile day’s trading yesterday, the pound first weakened then strengthened against the euro after Bank of England policymaker Tim Besley said it was too early to judge when the central bank would need to start withdrawing the massive stimulus it has delivered to the UK economy.
  
• However, another Bank of England policymaker was more optimistic yesterday. In his testimony to the UK Treasury Committee, David Miles said the most rapid declines in output were “behind us”. In addition, a credit conditions survey released by the central bank also buoyed sterling, after it showed that British lenders expect to make credit more readily available to households and businesses over the coming quarter.
  
• However, a PMI survey showing a modest deepening in the contraction of the UK’s construction industry capped sterling’s gains in late trading, after the index fell to 44.5 in June.
  
• The major announcement yesterday, however, was the European Central Bank’s interest rate decision, where they decided to keep rates on hold at 1.00%. ECB President Jean-Claude Trichet’s forecast that eurozone activity would likely remain weak for the rest of this year, stabilise in 2010 and grow thereafter weakened the single currency, as investors were hoping for a recovery sooner.
  
• In trading so far today, sterling has continued its rise against the single currency as investors continue to digest yesterday’s announcements.
  
• There are no major announcements due in the eurozone today, whilst in the UK Services PMI data is out at 13.30 BST.

Sterling weakens on poor US non-farms

Sterling weakened by 0.86 cents (0.52%) against the US dollar yesterday, finishing the day at $1.6392.

• In early trading yesterday, sterling weakened against the dollar as traders were unwilling to take on large positions ahead of important US jobless data out at lunchtime. When the announcement came, sterling plummeted after it showed a larger-than-expected drop in US non-farm payrolls in June.
  
• The pound was already in negative territory before the data, however, following cautionary comments from Bank of England policymaker Tim Besley and worse-than-expected UK construction PMI figures. Besley said it was too early to say when the central bank would be able to withdraw the massive stimulus it has supplied to the British economy, whilst the latest construction data showed a further deepening in the contraction of the sector.
  
• Weak London equities and a fall in oil prices also hurt the UK currency yesterday. The FTSE 100 eventually finished the day down 106.44 (2.45%).
  
• In trading so far today, the pound has recovered some of yesterday’s losses despite a warning from the WHO that swine flu is now ‘unstoppable’.
  
• There are no major announcements due in the US today, whilst in the UK Services PMI data is out at 13.30 BST.

Euro weakens after poor US jobs data

The euro weakened against the US dollar by 1.39 cents (0.98%) yesterday to finish the day at $1.4001.

• In trading yesterday, the euro weakened against the dollar after surprisingly poor US jobs data and dovish comments by the ECB President knocked risk appetite in the market.
  
• US non-farm payrolls dropped by a larger-than-expected amount last month, raising investor concern about the pace of the economic recovery. Elsewhere, cautionary comments from the ECB President Jean-Claude Trichet, who said growth in the eurozone would not return until late 2010, weighed on the single currency. The central bank also decided to leave their interest rates on hold at 1.00%.
  
• The single currency’s falls were further exacerbated yesterday after ratings agency Moody’s downgraded Ireland’s credit rating from AAA to AA1. They also gave the country a “negative” outlook.
  
• In trading so far today, the euro has gained ground against the greenback as investors continued to pick over yesterday’s announcements.
  
• There are no major announcements due in the US or eurozone today.

Pound strengthens on trade balance figs

The pound gained substantial ground against the Australian dollar yesterday, before giving back some of its gains overnight.

• Following the release of worse-than-expected Australian trade balance figures, the pound made strong gains against the aussie yesterday, rising by almost 3 cents and investors sold the Australian currency.
  
• However, the Australian dollar began recovering some of this lost ground overnight, as robust domestic data helped offset the Trade Balance figures.
  
• Private sector data overnight showed Australian vehicle sales surged to their third highest ever in June, while services sector activity boasted the first expansion in 15 months.
  
• These figures emphasised Australia's economic and financial health relative to other countries.

Kiwi falls dramatically on weak equities

The New Zealand dollar came under selling pressure yesterday, losing over 3 cents to the pound.

• Investors sold the kiwi dollar yesterday as weaker equity markets encouraged them to shun riskier currencies.
  
• Demand for the New Zealand dollar was also undermined as investors lowered their expectations of a possible rate hike later in the year.