Sterling halted its recent rally and is slipping back sharply against the kiwi as UK GDP figure disappoints

The pound was broadly sold on Friday following a weak GDP figure, losing three cents to the kiwi dollar, to close back down at 2.1607.

• Data revealed that Britain's economy has now shrunk for six quarters after it contracted by 0.4% in the most recent quarter, the longest period of contraction since records began in 1955.
  
• Analysts have now renewed their discussion over the possibility of the Bank of England retaining, or even extending, its £175 billion QE programme, which would compound sterling's weakness.
  
• The news also confirmed that the BoE are likely to keep the benchmark interest rate at a record low of 0.5% firmly into 2010, lessening the appeal of sterling assets.
  
• In response, the markets took the kiwi nearer its multi-year highs hit earlier this month, and this trend has continued in trading this morning as investors continue to take their lead from Friday's data.

Aussie made significant gains at the end of last week and is continuing to advance this morning

In trading on Friday, the pound slipped back from two-week highs around the 1.8000 level against the aussie as a weak GDP figure dulled demand for the UK currency.

• A report showed that the UK failed to exit the recession in the third quarter of this year, giving the central bank more reason to keep enacting emergency measures to spur growth.
  
• The data showed that the UK contracted by a further 0.4%, disappointing expectations of a 0.2% expansion and firmly halting the pound's progress.
  
• Where as in Australia interest rates have already been raised on the back of growing confidence in the economy, the UK may now be considering further loosening its monetary policies as recovery struggles to take hold.
  
• In trading this morning, the pound continues to fall, currently down 0.4% after the aussie received a boost from a Chinese report that suggested authorities were looking to diversify the country's foreign exchange reserves.
  
• The report suggested that China may look to buy up euro's and yen, which analysts said could also spill over into the aussie providing further demand.

The single currency pared recent gains on Friday, but has recovered in trading this morning

The single currency slipped back from multi-month highs against the dollar following positive US housing data, with the pair closing the week at 1.5006.

• The US dollar found support after a report showed that US existing-home sales improved more than expected last month.
  
• Resales of US houses jumped 9.4% in September to a seasonally adjusted annual rate of 5.57 million, the highest rate in more than two years, which stemmed the recent broad dollar sell off.
  
• Analysts stated that the recent bout of euro strength could now be looking over-stretched, given huge accumulation of short positions on the dollar.
  
• In addition, the single currency came under pressure at the end of last week after Henri Guaino, right-hand man of President Nicolas Sarkozy said that, "the euro at $1.50 is a disaster for the European economy and industry," reaffirming the recent sentiment of the ECB.
  
• However, the dollar has fallen to a fresh 14-month low against the euro in trading this morning after a Chinese central bank researcher called for moving some of the country's massive foreign reserves into euro and yen holdings, weakening demand for the US currency.

Sterling fell back significantly against the dollar on Friday, as GDP figure disappoints the market

Sterling lost three cents (1.9%) to the dollar, as a weak UK quarterly GDP figure abruptly halted the pound's recent rally.

• The greenback gained the most daily value against the pound in a month as the UK's economy unexpectedly contracted in the third quarter, giving the Bank of England more reason to expand emergency measures to spur growth.
  
• It is the first time UK gross domestic product has contracted for six consecutive quarters, since quarterly figures were first recorded in 1955.
  
• The pound fell more than a cent against the US dollar following the release of the figures, losing 0.6% in two minutes, with traders particularly concerned that the UK may turn out to be the only major economy still in recession.
  
• The unexpected decline in the services sector was the key factor behind the drop. The UK economy's reliance on the service sector, and financial services in particular, may be the reason why it is still in recession when partners such as France and Germany exited earlier in the year.
  
• This suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, which will put further pressure on the pound.

UK economy contracted by 0.4%, which has and will continue to weigh heavily on sterling

In an uncertain day for the UK economy, the pound lost as much as 2.0% to the euro on Friday, sharply reversing its recent rally to close down at 1.0862.

• Data revealed that the UK economy unexpectedly contracted by 0.4% between July and September this year, confirming that the UK is still in recession.
  
• Quarterly growth of 0.2% had been expected, although expectations had been tempered by recent figures showing no growth in retail sales in September and a 2.5% decline in industrial output in August.
  
• Importantly, the disappointing GDP figures may now lead the Bank of England to consider the possibility of extending their asset purchase scheme in their November meeting in order to sustain the evidently fragile recovery.
  
• Recent comments from policymakers had led markets to believe that the UK would be tightening monetary policies, however the tone is likely to be quite different following Friday's GDP figure.
  
• In trading this morning, the pound remains under pressure with investors continuing to sell the UK currency following last week's disappointing data.