Kiwi enjoys steady gains as risk makes a slight return

The pound slid back over half a cent against the kiwi yesterday as investors showed slightly more appetite for risk assets in the wake of positive US data.

• A raft of positive data in the manufacturing, construction, and housing sector’s yesterday raised confidence over the health of the global economy, benefiting higher-yield currencies.
  
• The kiwi also found support after the country’s Treasury said it expected the economy to grow at an annualised rate of about 2% in the second half of the year.
  
• Conversely the pound slipped back in trading, undermined by market speculation that the Bank of England would agree to extend their quantitative easing programme on Thursday.
  
• Data released yesterday morning revealed that growth in the UK’s manufacturing sector is accelerating, but the market appeared to shrug off the positive data, suggesting that investors are unlikely to take up sterling positions ahead of the BoE meeting later this week.
  
• The kiwi is continuing to trade strongly this morning, up a further 0.3% on sterling, bringing the price back below 2.28.

The aussie rally surges to a halt as the RBA caution against further rate increases in the short term

The aussie climbed over a cent, or 0.8%, against the pound in trading yesterday as the market priced in an interest rate increase in Australia.

• The aussie led a strong rally as investors positioned themselves for the rate decision from the Reserve Bank of Australia, with most anticipating a increase of 25 basis points.
  
• Although there were few still expecting the RBA to raise rates by 50 basis points following benign inflation data last week, investors were encouraged after, the Australian government on Monday upgraded its economic outlook, forecasting 1.5% annualised growth by the end of June 2010.
  
• Overnight the RBA did raise their rates by 0.25%, with the current interest rate now reading 3.50%, however the aussie has actually backed off following the news as the accompanying statement was not as hawkish as some had expected.
  
• With a rise already priced in, the aussie had little more to gain following the decision, but although it has dipped slightly, down 0.2% against the pound this morning, analysts note that with more rate increases to come the currency should remain well supported.

A brief return to risk appetite enabled the euro to post gains against the US dollar

The single currency gained half a cent on the dollar in trading yesterday as positive US data weakened demand for the haven currency.

• In early trading, a report showing China's manufacturing accelerated at its fastest pace in 18 months in October weighed heavily on the dollar as the positive news encouraged investor to buy into higher-risk currencies.
  
• The greenback lost further ground after the Institute for Supply Management's index of business activity rose much more than anticipated in October.
  
• US Manufacturing ISM rose to 55.7 in October, from 52.6 in September, well above the 53.3 reading expected by market analysts. Furthermore, pending home sales increased at a 6.1% pace in October
  
• This data, along with reports showing rising construction spending, helped stocks extend gains as investors increased their risk tolerance, detracting from the dollar's safe-haven appeal.
  
• The pair are trading steadily in this morning’s session, holding around the overnight closing price of 1.4765 as investors caution against taking positions ahead of central bank meetings in the US and EU.

Positive economic data in the US failed to buoy demand for the broadly weaker sterling

Positive UK manufacturing data was unable to offset bearish sentiment toward the pound yesterday with the US dollar closing 0.3% up.

• Sterling opened under heavy pressure yesterday as the markets speculated that the BoE would decide to inject further monetary stimulus into the economy at their next meeting.
  
• The pound was able to trim early losses though after a stronger-than-expected reading of UK manufacturing activity showed the sector expanded after prolonged weakness.
  
• The PMI index rose to 53.7 in October from an upwardly revised 49.9 in September, signalling the fastest pace of growth since November 2007 and beating forecasts for a rise to 50.1.
  
• In the afternoon, the pound recovered further ground as a raft of US economic data on manufacturing, construction, and housing showed more evidence of a recovery in the world's largest economy, encouraging investors to buy riskier assets.
  
• However, despite positive data, the pound was unable to make gains, still closing nearly half a cent down on the day as investors clearly remain cautious ahead of important central bank meetings this week.

Sterling under selling pressure as the market prices in an increase to QE

Sterling slipped yesterday, snapping a 5-day consecutive climb against the euro as traders braced for the possibility that the BoE may announce an extension to quantitative easing.

• The pound was broadly sold in trading throughout the day in spite of data showing that recovery in Britain's manufacturing sector was accelerating.
  
• The Chartered Institute of Purchasing and Supply said its composite index of manufacturing activity rose to 53.7 in October, following two-consecutive months of declines
  
• Investors appeared unconvinced, however. Improvements in purchasing managers' indices between March and July had prompted many to think the UK economy would have returned to growth in the third quarter, only to be disappointed by last month's negative GDP reading.
  
• The markets were particularly bearish towards sterling as they speculated that the BoE will announce a continuation of their asset purchasing scheme at their meeting later this week, which enabled the single currency to gain.
  
• Sterling was also under pressure from the looming announcement of a banking sector shake-up as the government finalises plans to carve up rescued banks RBS and Lloyds.