Kiwi halted its climb yesterday, as demand for higher-yeilding currencies weakened

Sterling reversed a three-day decline against the kiwi, posting marginal gains following a rise in risk aversion, closing the day at 2.1682.

• It was a choppy session for sterling, which initially dropped to a low of 2.1476 in early trading, as a lack of major economic data gave support to the higher-yielding currency.
  
• However, having dipped, the pound rebounded strongly, regaining over two cents as global equities backed off to trade in the red.
  
• Weak European stocks were followed in by the US markets, easing risk appetite and allowing the UK currency to stabilize in the afternoon, consolidating its position above 2.1650.
  
• In the early hours of this morning, the pound relinquished its gains as the kiwi found support from strong employment data from its neighbour Australia, and as higher Asian equities reaffirmed demand for the New Zealand dollar.
  
• However, the pound has found broad support as the European markets open, with the price currently hovering just below 2.17.

Weak equities undermined the aussie's upward trend yesterday allowing the pound to post marginal gains

The pound rebounded nearly two cents from its intra-day low against the aussie, halting its sharp slide and posting marginal gains of 0.2%, to close the day up at 1.7912.

• The Australian dollar has rallied strongly over the past two days following the surprise rate hike, but the aussie pulled backed yesterday as risk sentiment in the market dissipated.
  
• The high-yielding currency backtracked as equities took a downward turn and as investors sought defensive positions ahead of important statements in the UK and EU today.
  
• Additionally, analysts noted that market players may have over-bought the aussie, realising that it was only one central bank to raise rates and that similar moves from other nations may still be some way off.
  
• In trading today however, the Australian dollar’s upward trend has continued, already up 0.8% on the day, as strong employment data reinforced the pace of recovery in the nation.
  
• Overall unemployment fell to 5.7% in September, an improvement from 5.8% the previous month and beating out market expectations of 6.0%.

Investors were cautious yesterday ahead of an ECB rate decision, but the euro has rebounded this morning

The euro relinquished some of its recent gains against the greenback yesterday, with investors on the defensive ahead of the ECB rate decision today.

• A broadly stronger dollar was the currency of choice yesterday as investors trimmed “riskier” positions in favour of the haven currency as equities slipped into the red, easing risk appetite.
  
• The dollar also benefited after a US official said raising interest rates would not derail the US economic recovery. “Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy.
  
• Additionally analysts noted that the greenback was being supported by speculation that the dollar’s decline may have been too fast to sustain.
  
• In trading this morning, the greenback has come under pressure after Australian employment data reinforced demand for higher-yielding assets.
  
• The ECB are widely expected to announce today at 12:45BST that interest rates in the eurozone will remain at a record low of 1.0%, though the tone of the accompanying statement is likely to reflect growing optimism over the state of economic recovery in the region.

Sterling edged up against a broadly weaker dollar ahead of important central bank announcements

The pound reversed its steady decline against the greenback yesterday as investors relinquished defensive positions ahead of today’s MPC announcement.

• Cautious investors initially sought safety ahead of the two key central bank meetings today, putting pressure on the UK currency.
  
• Additionally, in an interview, Kansas City Federal Reserve President Thomas Hoenig said that the US central bank should start raising interest rates “sooner rather than later,” which buoyed confidence in the US economy.
  
• However, the greenback’s gains were limited, with the pound rebounding a cent from its intra-day low as investors felt that the market had gone too short on sterling positions ahead of today’s statements.
  
• In trading this morning, the dollar has been broadly sold as employment data in Australia beat expectations for a fall in jobs in September, with the rate actually falling to 5.7%.
  
• The pound has advanced nearly a cent, consolidating its positions above 1.60, although trading may be volatile following the MPC rate decision, announced at 12:00BST today.

Sterling posted gains vs the single currency, with the market forecasting no change in MPC policy

Having hit a fresh six-month low against the single currency in early trading , the pound rebounded yesterday, to close up half a cent at 1.0864.

• Unexpectedly weak data in the UK manufacturing industry on Tuesday continued to weigh heavily on the pound, dragging sterling to a 6-month low of 1.0781.
  
• With little data out in either the UK, the eurozone, or the US yesterday, markets initially continued to take direction from Tuesday’s data, which supported sterling selling.
  
• The euro trimmed its gains though following the second quarter final GDP figure for the eurozone, which was revised downward from a contraction of 0.1% to 0.2%, dampening the broadly positive sentiment towards the currency.
  
• In trading today investors will be listening carefully to both the MPC and ECB’s respective rate statements for clues to future rate movements.
  
• Both central banks are expected to keep interest rates at record lows, however analysts have noted that the BoE, in light of recent economic data, may hint at extending their asset purchase scheme before the year’s end, which could greatly weaken the UK currency.

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.