The pound posted strong gains vs kiwi on the back of rising risk aversion

Sterling hit a 6-day high against the kiwi yesterday as a sharp spike in risk aversion hurt sentiment toward the higher-yielding currency.

• Sterling initially fell by another half cent against the kiwi yesterday following surprisingly weak economic data emerging from the UK.
  
• However, the pound recovered its losses in the afternoon to close at 2.3926, up 0.7%, as investors sold off riskier currencies in light of falling global stock prices.
  
• Leading stock indices in Europe and the US fell by nearly 2% as traders withdrew from risk activity sparking concern over the pace of the global economic recovery.
  
• Analysts said that there was little substance to cause the risk aversion and that it was more the psychology of the market deciding to turn.
  
• In trading this morning, the kiwi has pared its losses, with the pairing now trading 0.2% lower than yesterday’s close.

Aussie regains value on strong growth rate of 0.6%

Sterling gained nearly 3 cents (1.3%) against the aussie yesterday, following cautionary words from the Reserve Bank of Australia.

• Sterling made strong gains against the aussie yesterday with the RBA’s dovish statement outweighing weak economic data in the UK.
  
• The RBA at their latest meeting held interest rates at 3.0%, which, although an expected decision, was accompanied by a statement that said the low rate was appropriate, countering more aggressive speculation.
  
• Those investors that had aggressively priced in the idea that Australia would increase rates trimmed their holdings putting selling pressure on the aussie and enabling the pound to close at 1.9553.
  
• However, data released this morning revealed that Australia’s economy expanded at a higher rate than expected in the second quarter, which has driven the pound back down in trading this morning.
  
• The 0.6% growth exceeded the 0.3% forecast and has strengthened demand for the aussie, with sterling already down 0.75% on yesterday’s close.

Euro plummeted 0.8% vs US dollar on falling global stocks

The single currency plummeted 0.8% against the greenback yesterday as falling global equities supported risk aversion.

• The dollar firmed substantially against the single currency yesterday, as falling European share prices were followed in the US indices’, prompting investors to shed perceived riskier currencies.
  
• The single currency lost nearly half a percent in just 25 minutes as investors dumped the euro, which closed the day at 1.4222.
  
• Stock markets in Europe were undermined by a combination of ongoing fears that recent bullish sentiment has overcompensated for the economic improvement to date.
  
• The euro fell despite some moderately bright data released in Germany, however this was offset by a rising unemployment rate in the eurozone, which has now hit 9.5%.
  
• The pairing is relatively unchanged this morning as traders await data released in the US this afternoon which should give a good indicator of current economic health.

A sharp fall in equities yesterday saw the pound tumble vs dollar

Sterling dropped over a cent to its lowest point in 6 weeks against the greenback yesterday following a combination of falling equity prices and weak economic data.

• The pound erased early gains against the greenback yesterday after an unexpected dip in UK manufacturing activity in August, stoking concerns about the pace of the recovery in the British economy.
  
• Many analysts thought the data represented only a temporary setback for a recovery, given the continued support of stimulus spending, but investors appeared more concerned about the implications for interest rates and monetary policy.
  
• Sterling also came under pressure in the wake of poor equity prices which failed to follow the rally in many of the Asian stocks.
  
• Additionally, in the US, data was revealed that the manufacturing industry expanded for the first month in over a year, producing a figure of 52.9. The figure failed to have a positive effect on sterling, which closed the day at $1.6157.
  
• In the US today, there is a string of economic data released, including non-farm employment change at 13:15BST.

A rise in risk aversion yesterday helped sterling par its losses vs euro

Sterling pared its losses yesterday to close the day just 0.05% down at 1.1358.

• Sterling suffered another setback against the single currency yesterday, relinquishing early gains following the release of weak manufacturing figures that came in below forecast.
  
• UK manufacturing PMI dropped to 49.7 in August from 50.2 in July, against market expectations of further recovery to levels around 52.0.
  
• Additionally consumer lending declined in July for the first time since records began in 1993 falling by £600m in July from a revised £200m increase in June.
  
• This unexpected data cast further doubts on the prospects of an improvement in the UK economy and a rise in interest rates, putting selling pressure on the pound.
  
• However, some analysts have said that the worst is probably over for the pound, with data yesterday also showing signs of improvement in the housing market as mortgage approvals rose to their highest levels in 15 months.
  
• In the UK today, figures are released at 09:30BST on the construction industry with forecasts predicting another contraction, whilst in the eurozone their revised GDP figure will be released at 10:00BST.