Kiwi found support from the strength of its neighbour yesterday, and as global equities rallied strongly

The pound lost a further one and a half cents to the kiwi following negative UK data, and as the aussie rate hike put the focus on the next RBNZ rate decision.

• Fears that Britain's fragile economic recovery is faltering were sparked after official figures revealed a surprise fall in industrial output in August.
  
• The data showed a 1.9% drop in manufacturing output month on month, a full 2.5% below the market prediction, encouraging further pound selling.
  
• The kiwi also benefited indirectly from the 25 basis point rate rise in Australia, which supported demand for higher-yielding currencies.
  
• The pound is now trading at record 20-year lows against the New Zealand dollar, as investors price a similar move from the New Zealand central bank into the market.
  
• The New Zealand dollar is up a further 0.3% this morning, as stronger global equities, higher dairy prices, and a weak US dollar helped to maintain support for risk trades.

Rate rise to 3.25% in Australia boosts demand for the aussie

The Australian dollar continued to push record highs yesterday, supported by the RBA’s decision to raise rates as the global financial crisis eases.

• The aussie continued to rally strongly, gaining nearly three cents, a 1.4% movement, as investors sought to take advantage of the higher-yield now available on Australian assets.
  
• The Reserve Bank of Australia became the first of the G20 nations to raise their base cash rate and helped to ease fears over the state of global economic recovery.
  
• Analysts also noted that the widening yield advantage points to further aussie appreciation, particularly as the RBA, unlike other central banks, does not seem too concerned about their currency strength.
  
• Additionally, the pound was further undermined yesterday as a negative manufacturing figure resurrected fears over Britain’s third quarter growth rate, pushing the price lower.
  
• The aussie dollar continues to trade strongly in trading this morning, encouraged by rallying Asian equities, pushing the price down near 1.77.

Single currency pushed higher vs the dollar, which came under heavy selling pressure

The single currency made strong gains yesterday as the dollar came under pressure about its future status as the chief currency used in oil trades.

• The single currency broached two week highs as a report came through that Arab States were in secret discussion to find alternatives to using the dollar in oil trades.
  
• Major oil-producing countries have denied the report, but markets reacted strongly to the news, which has added fuel to arguments that the US currency’s global status is coming under pressure.
  
• Analysts noted that the dollar’s sharp fall was a good example of poor sentiment toward the US currency being vulnerable to speculative selling.
  
• Rallying equity markets encouraged further dollar selling, with risk appetite in the market diminishing the appeal of the haven currency.
  
• Risk was also high following the Reserve Bank of Australia’s relatively unexpected rate hike, which spurred demand for high-yielding assets, lending support to an upward movement in the euro/dollar price.

Negative UK economic data pushes the pound down against a broadly weakened dollar

Sterling was unable to capitalize on an early rally against the dollar as weak economic data reaffirmed fears over the fragility of the UK recovery.

• Sterling initially advanced over a cent yesterday morning as selling pressure on the US currency mounted following an article stating that the dollar could cease to be used in oil trades in the Gulf States.
  
• However the pound relinquished its gains after weak manufacturing production data sapped investor demand for the UK currency.
  
• The manufacturing sector revealed a 1.9% decrease in production in August, reversing a three month increase in output, and falling well below expectations of a 0.4% rise.
  
• Economists, who had been hoping for a resumption of growth in the third quarter, warned that the figures could damage Britain's recovery prospects.
  
• Although sterling completed its fourth straight day of declines, it has only slipped 0.4% in that time, with investors increasingly selling the dollar to buy higher-yielding currencies.
  
• The pound has continued to edge steadily downward in trading this morning, as risk appetite in the market continues to bypass the burdened UK currency.

No reprieve yet for the ailing pound; continues to slide further against the euro

The pound slid for the third consecutive day against the single currency, losing 0.6% following a fall in industrial output, to close at 1.0812.

• Sterling received an early boost yesterday morning as a Halifax survey revealed a further rise in UK house prices of 1.6% in September, buoying hopes of a strengthening economy.
  
• However, such hopes were soon dashed after data revealed an unexpected fall in UK manufacturing output, which raised doubts over recovery prospects.
  
• British manufacturing fell 1.9% on the month in August, its steepest fall since January, which compares to a downwardly revised rise of 0.7% in July, and fell some way short of analysts’ predictions of a 0.4% increase.
  
• Importantly the data has also raised concerns that the UK may not have shown positive growth figures in the third quarter. The British economy is predicted to have exited recession, though yesterday’s figures could have dampened these expectations.
  
• Investors have continued to sell the pound in trading this morning, with downward pressure likely to remain strong ahead of tomorrow’s rate statement.