Pound touches year-high against US dollar

The pound strengthened by 1.29 cents against the US dollar yesterday, briefly hitting a year-high before finishing the day at $1.5475.

• In early trading yesterday the pound rose against the greenback as the pessimism surrounding the UK’s economy and financial sector continued to ease. News that talks had taken place between investors and UK Financial Investments (UKFI), which manages Britain’s holdings in RBS and Lloyds Banking Group, about potentially buying some of its stakes improved risk sentiment in the market.
  
• Rises on equity markets also drove the pound higher in early trading, pushing it to its strongest level against the dollar since mid-December.
  
• However, these gains were capped to some extent after worse-than-expected Consumer Price Index figures released in the UK dented risk appetite. April’s reading of 2.3% was slightly down on the 2.4% analysts had been expecting, but a marked fall from the 2.9% recorded the month before.
  
• Weaker-than-forecast US Building Permit data released mid-afternoon also dented sterling’s early gains. April’s reading of 0.49m was significantly lower than the 0.53m forecast and March’s reading of 0.52m. As a core driver of the US housing market, this surprisingly negative result bolstered demand for the safe-haven of the greenback as investors became less confident a global economic recovery may soon be underway.
  
• However, another strong performance by London equity markets drove the pound higher on the day. The FTSE 100 closed the day up 0.8%.
  
• In trading so far today the pound has continued its rise against the greenback, as general risk aversion in the market continues to wane.
  
• There are important releases due on both sides of the Atlantic today. At 9.30 BST, the Bank of England’s Minutes from their last policy meeting are out in the UK, whilst at 19.00 BST in the US, the Fed’s Minutes are released.

Euro rises against US dollar as risk aversion falls

The euro strengthened against the US dollar by 0.68 cents yesterday, finishing the day at 1.3628.

• In early trading yesterday the single currency rose against the US dollar, as risk aversion in the market continued to diminish. Monday’s strong equity market performance carried over to early trade yesterday, with the FTSE 100 up 0.5% mid-morning.
  
• These early gains by the euro were further extended following the release of better-than-expected German ZEW Economic Sentiment data released mid-morning. It registered a rise to 31.1 in May from 13.0 last month, buoying investor confidence that an economic recovery in the eurozone may soon be underway. Importantly, the reading was also well ahead of analysts’ forecasts of 20.0.
  
• However, weaker-than-forecast Building Permit figures released in the US significantly reduced the single currency’s gains mid-afternoon. April’s reading of 0.49m was much lower than the 0.52m recorded last month, and also the 0.53m analysts had forecast. This induced an immediate flight to safety, with some investors offloading the “riskier” euro in favour of the greenback as they worried a global economic recovery may yet be some way off.
  ,li>Nevertheless, the euro closed the day slightly up against the dollar as strong European equity market performance continued to ease risk aversion in the market.
  So far today the single currency has edged slightly higher against the dollar as investors continue to speculate that the eurozone may be on the cusp of an economic recovery.
  ,li>There are no major economic announcements due in the eurozone today, whilst in the US, the Fed’s Minutes from their last policy meeting are due at 19.00 BST.

New Zealand dollar holds its ground

The New Zealand dollar managed to hold its ground against sterling yesterday, but lost further ground to the aussie.

• The kiwi found support from investors seeking high yielding currencies on the back of renewed optimism that the global recession may be ending.
  
• However, with the Reserve Bank of Australia giving indications that it is likely to keep rates on hold, this suggests that the interest rate differential between the kiwi and the aussie may widen even further. This obviously gives the aussie the upper hand in attracting foreign investors.

Australian dollar holds its ground against the pound

The Australian dollar held its ground against sterling yesterday, as the high yielding aussie continues to benefit from an upturn in investor risk appetite.

• Optimism over the financial sector was given a boost as rumours that the institution managing the UK government’s stake in banking giants Lloyds and Royal Bank of Scotland were sounding out investors for a possible sell off.
  
• However, data out yesterday reminded markets that the UK economy was still in a bad way, with consumer price index inflation rising by only 0.2 percent for the month, bringing the annual rate of inflation down to 2.3 percent, from 2.9 percent in March.
  
• Although currency markets are backing sterling to outperform the US dollar and the euro going forward, any rebound against the aussie may take slightly longer.
  
• The Australian economy is in a much better position to recover from the world recession, as it has the highest yield in the developed world and a recovery in world growth would only support its commodity based exports.

Sterling continues its rise against the euro

Sterling continued its rise against the euro yesterday, finishing the day at 1.1315.

• In early trading yesterday the pound climbed against the single currency, as the FTSE 100 recovered from initial losses to record a 0.9% rise mid-morning.
  
• Sterling also gained on the back of Friday’s much worse-than-expected eurozone GDP figures, which revealed a 2.5% contraction in the region’s economy for the first three months of 2009.
  
• The pound’s early gains were also extended yesterday after more upbeat housing figures released by property website Rightmove. Following April’s 1.7% increase, this month saw a 2.4% rise in asking prices for homes in England and Wales, the largest monthly increase since February 2008, although the group did say it should not be mistaken for a housing market recovery just yet. Instead, it said the figures reflected a mixture of “ambition, optimism and necessity”.
  
• In the afternoon the pound continued to strengthen against the euro, as London equity markets rose markedly, driven by strength in banking stocks. News that Lloyds Banking Group chairman Sir Victor Blank would retire by June next year was welcomed by investors, with shares in the company finishing up 9.9% as a result. The FTSE 100 as a whole closed up 2.26%.
  
• In trading so far today the pound has continued its rise against the single currency, although investors are eyeing closely two important pieces of data released in the UK and eurozone later today.
  
• First, in the UK Consumer Price Index figures are due at 09.30 BST, shortly followed in the eurozone by the German ZEW Economic Sentiment Survey at 10.00 BST.

Sterling makes strong gains against the US dollar

The pound strengthened markedly against the US dollar yesterday, finishing the day at $1.5346.

• In early trading yesterday sterling climbed against the dollar, as London equity markets recovered from an initial 1% drop.
  
• Elsewhere, monthly figures from property group Rightmove aided sterling’s gains yesterday morning, as they showed asking prices in May rose by 2.4% in England and Wales, the biggest increase for the month since 2003.
  
• However, the group said it did not reflect a return to health of the country’s housing market, but rather a mixture of “ambition, optimism and necessity”. This capped sterling’s early gains to some extent.
  
• Strong performance by London equity markets yesterday afternoon drove sterling higher. Improved sentiment in the banking sector, following the decision of Lloyds Banking Group chairman Sir Victor Blank to retire next year, buoyed investor confidence that a global economic recovery was not too far off. As a result, many bought into the higher-yielding pound, moving away from the perceived safety of the dollar.
  
• In trading so far today the pound has continued its strong rise against the greenback, as general risk aversion in the market remains low.
  
• There are important economic releases due on both sides of the Atlantic today. In the UK, Consumer Price Index figures are out at 9.30 BST, while at 13.30 BST Building Permit data is due in the US.

Euro makes gains against US dollar as equities rise

The euro strengthened against the US dollar yesterday, finishing the day at $1.3560.

• In early trading yesterday the single currency weakened against the greenback, as investors continued to digest Friday’s much worse-than-expected first quarter eurozone GDP figures. They revealed a 2.5% contraction in the region’s economy for the first three months of 2009.
  
• Interestingly, comments from European Central Bank Governing Council member Axel Weber did little to stem the euro’s decline yesterday morning. He said the ECB had done enough to support the ailing eurozone economy unless the situation got noticeably worse.
  
• However, strong performance from global equity markets yesterday afternoon reversed early losses for the euro, as general risk appetite returned to the market. As a result, investors bought into the “riskier” single currency and sold the safe-haven of the greenback.
  
• The FTSE 100 finished the day up 2.26% at 4446.45, whilst the Dow Jones posted a healthy 2.85% rise to 8268.64. Strength in the banking sector in particular drove these gains.
  
• In trading so far today the euro has resumed its rise against the US dollar, as reduced risk aversion continues to sweep the market.
  
• There are major announcements due in both the eurozone and the US today. In the former, German ZEW Economic Sentiment Survey is out at 10.00 BST, whilst in the latter Building Permit figures are released at 13.30 BST.

New Zealand dollar holds its ground

The New Zealand dollar managed to hold its ground against sterling yesterday, as gains in equity markets and a reversal in risk aversion saw some support for the kiwi.

• Equities in the UK and the US rose yesterday, encouraging investors to buy back into riskier currencies like the New Zealand dollar.
  
• However, the kiwi’s support will remain tentative given the country's ongoing economic woes.
  
• Markets are likely to wait for further economic data, which may give further clues to the recovery process of the world economy, before giving the kiwi further support.

Australian dollar recovers ground on stronger equity markets

The Australian dollar strengthened back against sterling yesterday, as risk appetite came back into favour due to rising equity markets.

• With little economic news yesterday, positive remarks from many of the world’s top central bankers saw demand for higher -yielding currencies rise.
  
• The aussie dollar was also supported overnight by the release of the RBA minutes from their last meeting. The wide range of economic data considered by the Board generally pointed to some improvement in confidence and economic activity, and investors now believe the Reserve Bank has concluded its dramatic sequence of rate cuts.
  
• This morning inflation and retail figures will be released in the UK, marking the start of a series of UK data due out over the next few days. This will be important to the near-term direction of the pound.

Pound strengthens against the euro following eurozone GDP figures

The pound strengthened against the euro on Friday, finishing the day at 1.1246.

• A set of grim economic figures in the eurozone weighed on the single currency all day on Friday, as investor confidence that a recovery in the region may soon be underway diminished.
  
• German GDP data showed the country’s economy had contracted by 3.8% in the first quarter of 2009, the largest drop since the country started compiling quarterly data in 1970.
  
• Moreover, GDP in the eurozone fell by a much larger-than-expected 2.5% in the period, much faster than the US slowdown. Following a 1.6% contraction in the 16-country region in the final three months of 2008, Friday’s figure deepened what was already the worst recession in continental Europe since World War II.
  
• Sterling therefore gained on the view that whilst the UK economy remains weak, it appears the eurozone economy may be in worse shape, and could take longer to recover from the downturn. As a result, investors bought into the pound, dumping the single currency.
  
• In trading so far today the pound has continued its rise against the euro, as investors remain wary about buying into the single currency following Friday’s data.
  There are no major economic announcements due in either the UK or eurozone today.