Pound hits 5-week high against the euro

Sterling hit a five week high against the single currency yesterday, as the pound was boosted by the optimistic mood in equity markets. Following the better than expected results released by the American banks Wells Fargo and Goldman Sachs in the past week, banking shares in particular have been boosted as investors feel that the global recession may be bottoming out. The pound has benefited from this, as the UK’s economy is heavily reliant on the banking sector, and with the increased risk appetite in markets investors have become willing to buy into the higher risk pound. However, one concern looming for sterling is that the recent rally in the currency may have been slightly overdone, especially if suspicions that the recent boost in equity markets is nothing more than a ‘dead cat bounce’ are proved correct.

It was confirmed yesterday that Fortis Bank made a loss of €20.6bn last year, mainly due to its break up into state control and toxic assets. The bank was broken up last year and put into control of the Dutch, Belgian and Luxembourg governments following a failed rescue attempt. Within the UK overnight, RICS revealed that UK housing market sentiment improved last month, recovering to its strongest level in 13 months during March. The average sales per surveyor increased for the first time since late 2007, although it should be stressed we are coming off extremely depressed levels.

Expect GBP / EUR to take direction from equity markets in the near term, as JPMorgan and Citigroup report their first quarterly results on Thursday and Friday respectively.

Pound boosted by Goldman Sachs quarterly earnings

In Tuesday’s trading the pound strengthened by 0.40 cents to close at 1.4894 after rising equities gave sterling a boost. Banking shares performed well on news of Goldman Sachs’ strong first quarter earnings, which improved risk appetite and saw demand for the pound increase, especially as the health of the UK economy is heavily dependent on the banking sector. There were no major economic announcements in the UK yesterday, but in the US poor retail sales data was released showing that consumer spending had fallen 1.1% in March.

In today’s trading the pound has pared some losses having hit a low of 1.4824 and currently sits around yesterday’s close. This is ahead of the announcement of the Department of Communities and Local Government House Price Index in the UK, and the Consumer Price Index, TIC flows, capacity utilization and industrial production figures in the US. Also announced in America is the NY Empire State Manufacturing Index and the NAHB Housing Market Index, as well as the Fed’s Beige Book. With this barrage of data coming out in the US investors will also be paying close attention to the announcements of quarterly profits from American financial institutions over the coming days, with some suggesting that good figures will spell the end of the woe that has crippled the financial sector.

Euro loses ground to the US dollar

The euro lost ground to the US dollar yesterday, giving back some of Monday’s gains as Fortis Bank confirmed a €20.6bn loss for 2008 following write-downs on debt and the breakup of the business, while German manufacturing sales slid a record 23.3 percent in February compared to a year earlier.

Sentiment was also undermined yesterday afternoon by the release of worse-than-expected Retail Sales figures in the US, which overshadowed better-than-expected earnings reports from Johnson & Johnson and Goldman Sachs and halted the earlier rally on Wall Street.

There are several significant announcements taking place in the US today, including the Consumer Price Index, NY Empire State Manufacturing Index, Net Long Term TIC Flows, NAHB Housing Market Index and the Fed’s Beige Book. There are no announcements due from the eurozone.

New Zealand dollar loses ground

The New Zealand dollar lost some its recent gains over sterling as risk aversion resurfaced. Investor caution returned after poor US data and worries about corporate earnings became apparent. New Zealand first quarter inflation is due on Friday, with consumer prices expected to have risen on the previous quarter but with the annual rate forecast to decline.

Australian dollar consolidates on gains

The Australian dollar consolidated on its recent highs over sterling after market sentiment dampened after weaker than expected US results. Sales in the US unexpectedly fell in March after rising for two straight months, reducing the demand for commodity based currencies. Also, strong first quarter earnings from Goldman Sachs boosted global banking shares, which in return boosted sterling, which is driven by the UK’s heavy dependency on the banking sector.

Pound loses some value before long weekend

In a quiet day of trading before the long weekend, the pound lost some value against the single currency as investors were wary of taking on too much risk. The pound was little changed after the widely anticipated decision by the Bank of England to keep interest rates on hold at 0.5%. The announcement contained no surprises and the central bank will continue with its quantitative easing programme. Early in trading, sterling was helped to a day high against the euro after it was confirmed that Barclays was selling its iShares asset management business for over £3bn, boosting their balance sheet.

In early trading today the pound is gaining value against the euro, as equity markets are continuing to be boosted by better than expected results released by the American banks Wells Fargo and Goldman Sachs. Both banks have revealed first quarter profits ahead of expectations, boosting risk appetite which in turn is benefiting the higher risk pound.

There are no major economic announcements due in the UK or the eurozone this morning, so expect GBP / EUR to take further direction from the movement in equity markets today.

Pound pares losses as equity markets rise

On Thursday the pound weakened against the US dollar by 0.37 cents to close at 1.4679, despite news that Britain’s goods trade balance improved to -£7.3 billion and the Bank of England kept interest rates at 0.5%. Comments from the Monetary Policy Committee confirmed that whilst rates would be kept on hold the BoE would continue with its quantitative easing programme. In the US, the number of newly unemployed Americans applying for benefits fell to 654,000, but the number of continuing unemployed on benefits rose to 5.84 million. It was also reported that American import prices fell by 0.5% in March and now stand 14.9% down on the year, while the US trade balance shrank to -$25.97 billion.

Over the holiday weekend the pound performed well over the US dollar, strengthening from 1.4679 on Friday to 1.4851 at Monday’s close, on improved sentiment. A five week rally on Wall Street and growing confidence that the financial sector might be passed the worst saw safe haven demand for the dollar fall and appetite for the risky pound improve. Goldman Sachs led the US banks in announcing their 1st quarter earnings, with surprisingly strong figures much to the delight of investors.

In today’s trading the pound has pared some earlier gains and the market is floating around Monday’s close. This is ahead of the announcement of US producer price index, retail sales (excluding autos) and business inventories data, as well as a speech by the Fed’s Stern and figures from the ABC/Washington Post consumer confidence survey. There are no major economic announcements in the UK today.

US dollar weakens against most currencies

The dollar weakened against most major currencies yesterday following news of the possibility of General Motors Corp being declared bankrupt. The US Treasury directed GM to lay the groundwork for a bankruptcy filing by 1 June, which will ensure that the company is able to file bankruptcy if it cannot reach an agreement with bondholders to exchange roughly $28 billion in debt into equity in GM, and get needed concessions from the United Auto Workers union. This resulted in strengthening of the euro against the dollar. Nevertheless, trading was limited due to the Easter holidays.

Profit reports from the biggest US banks - including Citigroup Inc., J.P. Morgan Chase & Co. and Morgan Stanley are due this week, and could determine whether US stocks can continue on to five weeks of gains. Goldman Sachs announced earnings late yesterday as opposed to the expected release this morning, stating it was issuing $5 billion in stock to pay back government-bailout funds. Earnings in the first quarter rose to $3.39 a share, much higher than predicted.

There are several significant announcements taking place in the US today, including Producer Price Index, Retail Sales and the ABC/Washington Post Consumer Confidence survey. The Fed’s Stern will also be making a speech at 21.45 BST. There are no significant announcements taking place in the eurozone today.

New Zealand dollar nears 6-month high against the pound

The New Zealand dollar had a mixed day yesterday, nearing 6 month highs against sterling but losing ground to the heavily backed aussie. The kiwi generally remained in demand as stronger equity markets aided demand for higher yielding currencies. However, despite domestic data revealing the housing market may be starting to bottom out, the existing economic situation still suggests that the Reserve Bank of New Zealand will cut rates when it next meets at the end of the month.

Australian dollar approaches 12-year highs

The Australian dollar gained sharply against sterling yesterday, nearing new 12 year highs. The BoE decision on Thursday did little to move markets, as it kept rates on hold at 0.5 percent and announced it would continue on with its planned quantitative easing. However, the aussie spring boarded in light trade on Monday, as improved equity markets in the US helped demand for riskier assets. The main positive for the aussie was proposals by China to stimulate domestic demand. Australia depends heavily on commodity based exports, so improved demand from China bodes well for commodity prices and the domestic economy.