Sterling made gains against the kiwi yesterday, but rising risk appetite has supported kiwi advances today

Evidence that the UK economic recovery is strengthening enabled sterling to reverse a five day slide against the kiwi, closing up at 2.2341.

• Sterling clawed back nearly two cents, or 0.8%, in the wake of strong data referring to retails sales, credit lending, and a final upward revision to the GDP figure.
  
• Sales volumes at UK retailers bounced back to their strongest level for five months in September, reaching levels well above expectations, whilst the second quarter GDP figure in the UK was revised to just a 0.6% contraction.
  
• The positive data was offset slightly by a weaker-than-expected UK current account deficit, but investors seemingly overlooked this, with demand for the pound broadly rising.
  
• In trading this morning however, the kiwi has advanced, supported by a survey showing business confidence in New Zealand at a ten-year high, which fed speculation of a rise in rates.
  
• The kiwi also benefitted from a sluggish dollar and strength in the aussie, which supported appetite for riskier assets.

Positve UK data enabled the pound to reverse losses against the aussie yesterday

The pound reversed recent losses to gain 0.75% on the aussie yesterday in the wake of some positive economic data, which spurred investor demand.

• A GDP revision showed that British output contracted 0.6% in the second quarter compared with activity in the first three months of 2009, better than the previous estimate of -0.7%, according to the Office for National Statistics
  
• This data was supported by higher realised sales and an increase in net lending to individuals, which, together, underlined hopes that the UK should pull out of recession in the 3 rd quarter.
  
• The positive market reaction enabled the pound to distance itself from long-term lows hit recently against the aussie, though an increasing UK current account deficit may weigh on sterling’s recovery.
  
• In trading this morning, the Australian dollar has rebounded, already up 0.4% on the day, following better-than-expected month on month retail sales, which add to the case for a rise in interest rates as early as November.

An easing of risk appetite weakened the euro yesterday, but it has rallied back over $1.46 so far today

The single currency hit a two-week low against the greenback yesterday as a rise in risk aversion strengthened demand for the haven currency.

• The dollar rose for a second day as evidence that economies have yet to shake off the worst effects of the global recession spurred demand for the safety of the U.S. currency.
  
• Russia’s central bank cut its main interest rate, signaling that things are not as positive as they appeared previously, and spurring demand for the dollar.
  
• The greenback also found support following a disappointing US consumer confidence survey, which cautioned investors in their risk appetite.
  
• Comments from ECB President also weighed on the euro, with Trichet saying that he was in favour of the argument for a strong US dollar in the foreign exchange markets.
  
• The remarks were reflective of a concern regarding the strength of the single currency on the eurozone economic recovery.
  
• This morning, the single currency has stretched back over 1.46 as risk sentiment returns to the market, diminishing demand for the dollar.

More positive investor sentiment returned to the UK yesterday, supporting a slight pound recovery

Sterling reversed a four day slide against the dollar yesterday, supported by positive economic data that included another upward revision of the 2nd quarter GDP figure.

• The final gross domestic product figure showed that UK growth contracted by 0.6% between April and June, a narrower fall than the previous estimate of a 0.7% contraction.
  
• The revision is almost entirely due to stronger estimates of construction output than previously forecast, according to analysts.
  
• Sales volumes at U.K. retailers also bounced back more than expected to their strongest level for five months in September and are expected to remain steady in October.
  
• In the US, a confidence survey produced a figure below the level expected, which cautioned investors slightly, capping sterling’s gains and bringing it down from an intra-day high of $1.5989.
  
• However, the pound has continued to rally this morning, already up another cent and currently trading around 1.6060, following the strongest Gfk consumer confidence survey figure since January 2008.

The UK economy is showing signs of recovery, which has buoyed the ailing pound

In trading yesterday the pound picked itself up from 6-month lows against the single currency, gaining 0.7% as positive data buoyed investor sentiment.

• In a final revision, Britain’s second quarter GDP figure was reported as -0.6%, up from a previous revision of -0.7% and strengthening claims that the UK will exit recession in the third quarter.
  
• There was also positive data from the UK CBI retail sales index, which showed considerable improvement from last month, reaching levels well above expectations.
  
• Additionally, lending to individuals rose in August, reflecting both an increase in the willingness of high street banks to extend credit, and also improved consumer confidence in the market as they begin to take on more debt.
  
• In the evening, it also emerged that the BoE may not be planning to lower interest rates, backtracking from King’s recent comments, and enhancing the pound’s yield appeal.
  
• Sterling fared well following the day’s news, but its gains were capped as it was also revealed that the U.K.'s current account deficit widened in the second quarter to its largest level for nearly two years, as investment income narrowed.