Falling Asian stocks have enabled sterling to reverse its slide vs the kiwi

Broad selling pressure on the pound on Friday enabled the kiwi to advance another two cents (0.9%), with the price falling down to 2.2934.

• The pound suffered as the fragility of the UK banking sector was underlined with Lloyds Banking Group unable to break free of the government’s asset purchasing scheme due to a tightening of regulations.
  
• Also weighing on the pound was an increase in public net borrowing which fed into the story that the fiscal situation is not going to get any better any time soon.
  
• Overall, higher-yielding currencies traded down on Friday as weaker commodity markets and a rise in risk aversion hastened investors into haven currencies, but this was outweighed by sterling weakness, enabling the New Zealand currency to advance.
  
• However, in trading this morning, sterling has rebounded, paring its losses as demand for higher-yielding currencies was dampened by falling Asian stocks.

Sterling fell further on Friday but has pared its losses against the aussie this morning

There was no reprieve for the pound on Friday as it slid for the fifth consecutive day against the aussie, losing another cent to close down at 1.8744.

• Sterling came under broad selling pressure following news that Lloyds did not have the capital to break from the government’s asset purchase scheme, which underlined the financial instability in the UK economy.
  
• The U.K. currency also weakened after British Bankers’ Association data showed the cost of three-month loans in sterling between banks fell for a 13th day.
  
• However, some analysts have said that the Australian dollar may face headwinds in extending its gains as the Australian economy is recovering to pre-financial crisis level at a quicker rate than the broader global economy.
  
• In trading this morning the pound has slowed its rate of decline, as falling Asian equities weakened demand for the aussie.
  
• Both the Nikkei and Shanghai composite closed down slowing the Australian dollar’s advances, with the pair currently trading steadily around Friday’s closing price.

An easing of risk appetite has aided the dollar, recovering from 2009 lows against the euro

The dollar recouped some of its losses on Friday following a slight rise in risk aversion, bringing the price back to 1.4708.

• The dollar gained a respite as bearish commodity and equity markets provided a measure of haven demand and some support for the greenback.
  
• Additionally, investors trimmed their positions on Friday ahead of holidays in Japan and Singapore this week, although the trend for broad dollar weakness is seen as likely to persist.
  
• However, other analysts argue that with US short positions at their highest in over year, the oversold greenback could continue getting a reprieve over the coming days.
  
• Indeed, the single currency has continued to lose ground in trading this morning, sliding another 0.3%, as investors remain wary of taking positions ahead of the US interest rate statement being made later this week.

BoE comments on the pound's long-run recovery prospects have further weakened its demand this morning

Underlining instability in the British economy weighted heavily on the pound on Friday, losing 1.1% to the greenback to close down at $1.6270.

• Traders sold the pound after banking concerns resurfaced in the UK, undermining any improvement in sentiment toward London’s financial sector and the UK currency.
  
• Reports that tougher-than-expected capital requirements were likely to be applied to the proposed exit of Lloyds from the government’s asset-protection scheme sent the pound sliding to a two-week low of 1.6234.
  
• Friday also saw an easing off in risk aversion as investors remained cautious of holding positions over the weekend, which encouraged demand for haven currency allowing the dollar to broadly strengthen.
  
• Demand for the greenback also came as the rally in global equities slowed considerably as investors booked profits on the back of a consecutive 4-day climb.
  
• The ailing pound has slid further in trading this morning after the BoE said that sterling’s long-run sustainable FX rate may have fallen due to an increased focus on the UK’s economic imbalances following the credit crisis.

Pound slid further vs the euro on Friday, but has slowed its slide in trading this morning

Worries about the underlying health of the UK banking sector took sterling to its lowest point against the euro on Friday since April 27th at 1.1054.

• Britain’s currency dropped sharply against the single currency after it was revealed that Lloyds was forced to abandon a move to withdraw from the U.K. government’s asset protection plan, underlining the fragility of the banking sector.
  
• Signs of weakness in the UK and global banking sector tend to hit sterling hard given the large role that the financial sector plays in the British economy.
  
• Additionally, public sector net borrowing in the UK increased to £16.6 billion in August, which although slightly less than market expectations, was the third largest monthly borrowed amount since records began, further dampening demand for sterling.
  
• By contrast, the eurozone current account improved in July to post a €6.6 billion surplus, at positive levels for the first time since February 2008, strengthening demand for the single currency.
  
• In trading this morning, the pound has slowed its rate of decline, as sterling found some support in a Rightmove survey that revealed positive data on house prices.