Kiwi struggled as the PM highlighted the problems inherent with a strong currency

The kiwi dollar came under pressure yesterday following dovish comments from the PM, enabling the pound climb two and a half cents, closing at 2.1845.

• The kiwi dollar underperformed after the country's Prime Minister John Key said New Zealand is concerned over the strength of its currency, but has few tools at its disposal to deal with it.
  
• The statement concerned investors as it lessened the chance of the RBNZ raising interest rates in the near future as some traders were expecting.
  
• In trading this morning the pair are trading steadily around last night's closing price, with investors now turning their focus the NZ interest rate decision on Wednesday evening.
  
• Although rates are likely to hold, the accompanying statement will give policymakers a chance to elaborate on comments made about the relative strength of their currency and enable investors to gauge possible rate movements in the future.

Sterling made gains against the aussie as the price of gold fell back

The pound posted gains against the aussie yesterday, reversing its steep fall at the end of last week as investors cashed profits, closing up 0.8% at 1.7822.

• The aussie was broadly weaker in trading yesterday as investors took the opportunity to take profits following sharp gains made on Friday.
  
• The price of gold also continued to fall yesterday, discouraging investment in the commodity linked currency. Gold quoted around 1053/oz yesterday, though probably due more to profit taking than lack of strength.
  
• In trading this morning, the aussie is slightly up on the day, though investors are likely to remain wary ahead of sales data in the UK and a consumer confidence survey in the US
  
• In addition, investors may well caution against long positions ahead of Thursday when the US 3 rd quarter GDP figure is released. The economy is forecast to have grown by 3.3% in the quarter, though if it undershoots this target it could trigger a wave of selling in riskier currencies.

The dollar is recovering losses against euro on speculation that the Fed may signal a tightening of monetary policy

Having traded strongly against the dollar in the early session, the euro surrendered gains in the afternoon session, pulling the price down sharply to close a $1.4873.

• Initially, the greenback hit a fresh 14-month low versus the euro after the Beijing-based Financial News revived concern over the status of the dollar, stating that China should raise the amount of yen and euros held in its foreign-exchange reserves.
  
• However, the dollar pared its losses after the author of the report said that it was purely a "personal view".
  
• In addition, the issue of diversification has been a topic for quite a while and the impact of the news was short-lived. Analysts noted that investors were particularly short on the dollar already and were cautious about over-selling.
  
• In the afternoon, the Chicago Fed announced that its Midwest Manufacturing Index rose 1.0% in September offering more evidence that the US economy is digging itself out of the economic slowdown and lending support to the greenback.
  
• The single currency lost further value with the US stock markets opening in the red, which in turn pulled European equities negative, discouraging euro investment.

Sterling is rebounding against a broadly weaker dollar

Further doubts over the dollar's reserve status stoked selling in the US currency yesterday, enabling the pound to recover some of Friday's heavy losses.

• The greenback lost ground broadly after an article stated that the People's Bank of China may be considering raising the share of the euro and the yen in its foreign exchange reserves, though the dollar should still remain dominant.
  
• However it was later revealed that the article was merely the author's "point of view," which capped sterling's gains, as investors checked their dollar selling.
  
• In addition, the pound found support as declines at the end of last week were seen by some investors as over-stretched, suggesting that the market has oversold sterling.
  
• However, as the US markets came online, global stocks took a dive into the red, enabling the haven currency to trim its losses.
  
• Analysts noted that given the huge amount of bearish trades on the dollar in recent weeks, a near-term dollar recovery could be on the horizon.
  
• In trading today, investors will be looking for direction from sales data in the UK, released at 11:00, and a consumer confidence survey in the US, released at 14:00.

The pound rebounded strongly vs the euro yesterday with analysts suspecting that sterling could be oversold

After an unsteady early session, the pound rebounded strongly from Friday's sell off, to close 1.1% up.

• The pound recovered steadily through the day after data revealed that the German Gfk consumer sentiment indicator dropped to 4.0 from 4.2 in October, weaker than the median forecast of 4.5, dulling demand for the single currency.
  
• In addition UK business confidence rose to the highest in 18 months, according to a third-quarter survey, with 19% of executives polled saying the outlook for business is "good" or "very good," up from 9% in the previous quarter, which stoked demand for the pound.
  
• Analysts hypothesised that the pound may be considerably oversold at its current value, which does present a good opportunity for British businesses.
  
• Analysts also noted two opposing arguments developing: the first is a widely held view that based on better PMI survey data there is a good chance that GDP data for Q3 will be revised up.
  
• The second is the growing certainty that the BoE will announce a step up in QE at next Thursday's policy meeting. The offsetting nature of these views may contain volatility in the approach to the November 5 th policy meeting.