Pound finds slight repreive in relatively upbeat minutes from the latest MPC meeting

It was revealed today that Britain’s Monetary Policy Committee in their last meeting decided unanimously to “continue with the announced programme of asset purchases.” Following a recent statement from Mervyn King where he announced the possibility of an interest rate cut, the pound plummeted in value, particularly against the euro, as investors priced this news into the market. However the minutes have revealed that the outlook for the UK economy is less negative than has recently been perceived.

There was no indication that the nine members had discussed cutting the remuneration rate that commercial banks were paid for holding their reserves with the BoE. Indeed various statements, sounded an encouraging tone, with “growth in the second half of the year likely to be positive.” The minutes also spoke of the possible “start of a virtuous upward spiral for the economy.” These comments were slightly offset by the lingering prospect of high unemployment and the likely long-lasting drag on aggregate demand from the financial sector. However, of note for investors was that the tone of the meeting was neutral and not the picture of a weak economic recovery that some had forecast.

Kiwi surges as NZ exits recession

The kiwi surged up nearly two cents (0.8%) against the pound yesterday, as positive economic data spurred demand for higher-yielding currencies.

• Government data early yesterday morning showed that New Zealand’s current-account deficit shrank to its lowest level since 2004, which buoyed investor confidence in kiwi assets.
  
• In addition, the Fonterra Cooperative Group, the world's largest milk exporter, boosted its milk-price forecast for the year ahead by 12%, a positive development for the economically important dairy sector, which supported demand for the kiwi.
  
• The kiwi also benefitted from a broader rise in risk activity in the market, as investors chose to sell the dollar in favour of higher-risk positions.
  
• New Zealand and has enjoyed more positive economic data this morning, with the country posting a positive growth figure in third quarter of 0.1%, higher than a forecast -0.2%
  
• The markets have responded strongly to the news, although it had been assumed for some time, with the kiwi advancing a further 0.8% in trading so far today.

Strengthening risk appetite raises demand for the higher-yeilding aussie

Sterling lost half a cent (0.3%) to the aussie yesterday, as a weak dollar encouraged investors into higher-yielding assets.

• The aussie made gains, buoyed by a weak dollar and a return to risk activity, and also taking support from the huge rally in its neighbouring commodity-driven currency, the kiwi.
  
• Also contributing to risk appetite and the broad dollar sell-off was an encouraging sign of a strengthening global economy, with the Asian Development Bank overnight declaring some Asian economies - including China and South Korea - are growing faster than previously forecast.
  
• Additionally, investors turned to higher-yielding currencies as most global stocks moved higher, triggering a new wave of risk-taking.
  
• In trading this morning, the Australian currency has continued to climb, again supported by kiwi strength, though at a much diminished rate, as investors await the minutes from the latest MPC meeting.

The euro made gains yesterday as investors sold the dollar ahead of the FOMC rate statement

The single currency broke over the 1.4800 mark yesterday, pushing up its yearly high against the greenback, as investors returned to selling the dollar.

• Rallying equity markets renewed signs that the global economy is set for recovery, diminishing sentiment toward the dollar, and spurring investors to buy higher-yielding assets.
  
• There are currently a number of factors which continue to work against the dollar, notably the improving economic conditions and the strengthening of risk appetite in the market, which have supported the euro’s climb.
  
• The US currency also weakened on speculation that the G20 meeting in Pittsburgh this week will call for a reduction in global trade imbalances that may cause further gains for currencies against the dollar.
  
• Trading on the dollar has slowed this morning with the price currently holding at around yesterday’s closing price, as investors await the Fed interest rate statement, released today at 19:15BST.
  
• Any sign that the central bank intends to continue its monetary easing measures beyond this year could send the dollar plummeting further.

Sterling posted gains aginst a broadly weaker dollar yesterday

Sterling reversed its slide yesterday, climbing 0.9%, taking advantage of dollar weakness and pushing on to a close of $1.6358.

• Rallying equities first in Europe and then followed on US indices, returned risk appetite to the market, putting pressure on the haven currency.
  
• Indeed the dollar suffered selling across the board yesterday ahead of the Federal Open Market Committee statement released this evening at 19:15BST, and the G20 summit later this week.
  
• Analysts expect the Fed to signal its ultra loose monetary policy will remain in place well into next year and the G20 to discuss rebalancing the global economy, a process that will almost certainly require a weaker dollar.
  
• The persistence of downward pressure on the greenback is likely to continue according to analysts, with investors increasingly favouring higher-yielding assets, which should keep the price high.
  
• Trading has been tightly range bound this morning, with the pound failing to hold its position above 1.6400 ahead of important economic information, and currently trading around 1.6360.

Pound / euro pairing is holding relatively steady as investors await the MPC minutes

In a muted day’s trading in the build up to the MPC minutes, the pound made marginal gains, buoyed by rallying global equities.

• Sterling initially hit a fresh 5-month low against the single currency yesterday at 1.1012, driven by euro strength against the dollar and underlying bearish sentiment against the pound.
  
• Perceptions that the BoE will remain behind its counterparts in ending their loose monetary policy are expected to keep downward pressure on the pound in the short term.
  
• Some analysts have noted that the pound does offer long-term value at current levels, but an extremely dovish BoE has undermined investor confidence, keeping the currency low.
  
• In the afternoon however, the pound was able to reverse its losses and advance 0.2% as rallying equities supported risk appetite.
  
• Trading this morning between this pair has remained subdued, with investors anxious of taking positions before the Monetary Policy Committee’s minutes are released at 09:30BST.