Demand for sterling slides, whilst demand for the kiwi soars

The pound reversed gains made on Monday, falling over two cents against the kiwi (0.9%), as the likelihood of an early rate rise in the UK was diminished.

• Sterling suffered yesterday as bearish sentiment toward the currency gained momentum after BoE governor Mervyn King said he would consider cutting rates on commercial banks’ reserves held at the central bank.
  
• Additionally, global economic optimism, driven by strong retail sales and producer prices in the US coupled with a positive statement from Fed chairman Bernanke, pushed up higher-yielding assets like the New Zealand dollar.
  
• The pound fell 1.1% against the kiwi, closing down at 2.3383, and the pound is fairing little better in trading this morning, having already fallen a further 0.7%.
  
• With little data of significance out in New Zealand this week, the kiwi will continue to be heavily influenced by rising risk appetite which could see the currency continue to strengthen.

Aussie advances against the pound as risk appetite in the market strenghtens

Sterling continued to slide against the aussie yesterday, as confidence in the strength of the UK economy was put under pressure.

• Early gains for the pound, following a rise in house prices, were dashed in an inflation report in which BoE governor Mervyn King stated the central bank was considering lowering interest rates.
  
• Demand for the pound immediately fell, with the price falling from an intra-day high of 1.9326, to a close of 1.9089, a drop of 1.2%
  
• Mr King added that the British economy had probably started growing again but recovery would be slow and risks to inflation were still to the downside, which put further selling pressure on the pound.
  
• Overnight the Australian dollar has advanced further, supported by strong Asian stocks and rising optimism over the global recovery, with the pound now breaking thirteen-year lows, falling another 0.6% so far today.

Euro strengthens against the dollar as data spurs hopes of global recovery

Having gained steadily throughout European trading, demand for the dollar ebbed away yesterday afternoon following positive economic figures allowing the euro to strengthen.

• The dollar initially jumped after a pair of U.S. economic reports said retail sales rose 2.7% and producer prices rose 1.7% in August, both more than economists expected.
  
• Retails sales were spurred on by the government’s “cash for clunkers” scheme, though even without cars, sales still increased by 1.1%, reinforcing hopes that the economy is on the path to recovery.
  
• Additionally, New York’s Empire State manufacturing index revealed another growth in output, further strengthening demand for the greenback.
  
• However, the dollar abandoned these gains, touching a fresh 2009 low against the single currency, as investors moved into riskier assets in the wake of the positive data.
  
• In choppy trading, the dollar was unable to sustain its burst of strength, as the euro continued to consolidate the strong position it has accrued over the last fortnight.
  
• The CPI inflation rate is out in the US today at 13:30BST, with analysts forecasting the rate to hold steady at 0.1%.

King's statment puts selling pressure on the pound, allowing a broadly weaker dollar to gain

The possibility of further monetary stimulus in the UK economy sent the pound tumbling against the dollar yesterday closing down at $1.6488.

• The pairing, which had reached a 1.6655 high in early trading, reversed sharply as BoE governor Mervyn King explained that the central bank was considering reducing its deposits rate in order to discourage banks from accumulating reserves.
  
• In testimony before UK parliament, Mervyn King, governor, said he was looking at “reducing the remuneration” of commercial bank reserves.
  
• The potential for lower deposit rates and gloomy assessment weighed on UK government bond yields and pulled the pound down to an intra-day low of $1.6402.
  
• Additionally, in the US, positive economic figures supported the dollar as investors were prompted to return to the theme that the US is at the forefront of a global economic recovery.
  
• For months, the greenback has tended to fall following strong data as investors' willingness to buy riskier assets strengthens. That trend has shown signs of diminishing though recently, and resuming its more traditional correlation to economic data.

Pound slides sharply against the euro on speculation over possible interest rate cut

Sterling fell to a near four-month low against the single currency yesterday following Mervyn King’s suggestion of an interest rate cut.

• Sterling fell to a low of 1.1233 after Mervyn King said that the central bank was considering reducing the interest rate in order to provide a disincentive for banks to hoard cash, encouraging them to lend.
  
• According to analysts, such a move would effectively be an expansion of the central bank's quantitative-easing programme, and these monetary risks constitute a major hurdle for sterling.
  
• King’s statement stemmed an earlier rally in which sterling briefly advanced after UK consumer price inflation data came in stronger than expected in August.
  
• Figures showed UK consumer prices rose 0.4% last month to give an annual reading of 1.6%.
  
• Additionally, in the eurozone, data showed that German economic sentiment rose to 57.7 in September, higher than the 56.1 reading seen in August, which further supported the euro.
  
• The pound eventually closed down at 1.1247, with rallying global stocks failing to buoy the UK currency, and the price has continued to slide overnight, with trading currently around 1.1200.