Sterling slightly down on Friday after rough week

Sterling weakened by 0.17 cents (0.15%) against the euro on Friday to close the day at 1.1631.

• The UK trade deficit narrowed to a three-year low in May with a goods deficit of £6.3bn which will provide some underlying support for sterling, although the impact was limited.
  
• As expected, the Bank of England left interest rates on hold at 0.50% following the latest MPC policy meeting. The central bank also announced that their quantitative easing programme would remain at £125bn, contrary to some speculation that the amount of bond buying would be increased and this provided an immediate boost to sterling last week.
  
• The bank announced that there would be a review at the August meeting when the latest inflation report will be available. There will continue to be some expectation the bank will increase the bond buying next month and this will tend to prevent any substantial improvement in sentiment.
  
• The ECB stated last month commercial banks in the 16-nation euro region may lose a further $283 billion by the end of next year as the financial crisis forces them to write off bad loans.
  
• It is anticipated that European Central Bank President Jean-Claude Trichet will today state that interest rates will not be cut at the ECB’s next meeting.
  
• The ECB said in its monthly report last week that interest rates are “appropriate” and the eurozone’s economy will gradually get out of the recession in 2010. The region’s interest rate remained unchanged at 1% on July 2 in order to improve economic growth in the eurozone.

Pound dragged down by falling equities

The pound weakened against the US dollar on Friday, losing more than a cent as falling equities made investors more risk-averse.

• The pound made strong gains against the US dollar on Thursday after the Bank of England shocked markets by announcing it would leave its quantitative easing programme at £125bn.
  
• But the pound began falling against the dollar on Friday, as the greenback gained support from falling equity markets and worries about upcoming US corporate earnings figures.
  
• British shares hit a 10-week low on Friday, undermined by falling oil prices and a downbeat earnings outlook from US oil company Chevron Corp.
  
• The pound has continued falling broadly this morning, losing another 1½ cents to the US dollar as the British currency comes under broad selling pressure amid struggling equities and growing risk aversion.

Euro weakens vs. US dollar as risk appetite wanes

The euro weakened by 0.84 cents (0.60%) against the US dollar on Friday to finish the day at $1.3934.

• In trading on Friday, the euro weakened against the dollar following the onset of the US corporate earnings season. This contributed to a growing sense of unease about the global economic recovery, reducing appetite for riskier currencies like the euro.
  
• Further falls in equity markets, commodities and emerging market currencies also weighed on the single currency, as did cautious comments on the global outlook from the IMF and G8 meeting in Italy.
  
• However, the euro’s falls were stemmed to some extent as investors took heart from Wednesday’s German industrial output figures released earlier in the week. They suggested the eurozone may hold up better than many had feared.
  
• In addition, monthly French industrial production also came in stronger-than-forecast on Friday, registering at 2.6% from -1.5% last month and ahead of analyst forecasts of -0.1%.
  
• There are no major announcements due in the eurozone today, whilst in the US the Federal Budget Balance is due at 14.00 BST.

Sterling finishes the week down vs. aussie

Last week ended with sterling losing 45 cents against the Australian dollar, as traders booked profits ahead of the weekend.

• Nevertheless, last week was very good for the pound as it gained nearly four cents against the Australian dollar as the recent cooling in commodity prices took its toll on the Aussie.
  
• Friday proved to be quiet for GBP/AUD trading as investors were wary of taking on too much risk – the pound was not helped as the FTSE 100 had a sluggish day.
  
• In early trading today, the pound is under broad selling pressure as equity markets remain under pressure. This week could prove to be volatile as key economic data is released out of America.

Sterling finishes down against kiwi

Sterling came under selling pressure against the New Zealand dollar on Friday, losing over a cent in value during trading.

• Last week still proved to be positive for the pound as it gained 2.56 cents against the kiwi, as the commodity based New Zealand currency came under increased selling pressure.
  
• In early trading today the pound is trading in a narrow range against the kiwi as equity markets in Asia struggled overnight. Retail sales data was also released in New Zealand late last night, coming in ahead of consensus.
  
• Economic data is light on the ground within the UK today, so expect trading to take its lead from equity market movements.