Falling Asian stocks have enabled sterling to reverse its slide vs the kiwi

Broad selling pressure on the pound on Friday enabled the kiwi to advance another two cents (0.9%), with the price falling down to 2.2934.

• The pound suffered as the fragility of the UK banking sector was underlined with Lloyds Banking Group unable to break free of the government’s asset purchasing scheme due to a tightening of regulations.
  
• Also weighing on the pound was an increase in public net borrowing which fed into the story that the fiscal situation is not going to get any better any time soon.
  
• Overall, higher-yielding currencies traded down on Friday as weaker commodity markets and a rise in risk aversion hastened investors into haven currencies, but this was outweighed by sterling weakness, enabling the New Zealand currency to advance.
  
• However, in trading this morning, sterling has rebounded, paring its losses as demand for higher-yielding currencies was dampened by falling Asian stocks.

Sterling fell further on Friday but has pared its losses against the aussie this morning

There was no reprieve for the pound on Friday as it slid for the fifth consecutive day against the aussie, losing another cent to close down at 1.8744.

• Sterling came under broad selling pressure following news that Lloyds did not have the capital to break from the government’s asset purchase scheme, which underlined the financial instability in the UK economy.
  
• The U.K. currency also weakened after British Bankers’ Association data showed the cost of three-month loans in sterling between banks fell for a 13th day.
  
• However, some analysts have said that the Australian dollar may face headwinds in extending its gains as the Australian economy is recovering to pre-financial crisis level at a quicker rate than the broader global economy.
  
• In trading this morning the pound has slowed its rate of decline, as falling Asian equities weakened demand for the aussie.
  
• Both the Nikkei and Shanghai composite closed down slowing the Australian dollar’s advances, with the pair currently trading steadily around Friday’s closing price.

An easing of risk appetite has aided the dollar, recovering from 2009 lows against the euro

The dollar recouped some of its losses on Friday following a slight rise in risk aversion, bringing the price back to 1.4708.

• The dollar gained a respite as bearish commodity and equity markets provided a measure of haven demand and some support for the greenback.
  
• Additionally, investors trimmed their positions on Friday ahead of holidays in Japan and Singapore this week, although the trend for broad dollar weakness is seen as likely to persist.
  
• However, other analysts argue that with US short positions at their highest in over year, the oversold greenback could continue getting a reprieve over the coming days.
  
• Indeed, the single currency has continued to lose ground in trading this morning, sliding another 0.3%, as investors remain wary of taking positions ahead of the US interest rate statement being made later this week.

BoE comments on the pound's long-run recovery prospects have further weakened its demand this morning

Underlining instability in the British economy weighted heavily on the pound on Friday, losing 1.1% to the greenback to close down at $1.6270.

• Traders sold the pound after banking concerns resurfaced in the UK, undermining any improvement in sentiment toward London’s financial sector and the UK currency.
  
• Reports that tougher-than-expected capital requirements were likely to be applied to the proposed exit of Lloyds from the government’s asset-protection scheme sent the pound sliding to a two-week low of 1.6234.
  
• Friday also saw an easing off in risk aversion as investors remained cautious of holding positions over the weekend, which encouraged demand for haven currency allowing the dollar to broadly strengthen.
  
• Demand for the greenback also came as the rally in global equities slowed considerably as investors booked profits on the back of a consecutive 4-day climb.
  
• The ailing pound has slid further in trading this morning after the BoE said that sterling’s long-run sustainable FX rate may have fallen due to an increased focus on the UK’s economic imbalances following the credit crisis.

Pound slid further vs the euro on Friday, but has slowed its slide in trading this morning

Worries about the underlying health of the UK banking sector took sterling to its lowest point against the euro on Friday since April 27th at 1.1054.

• Britain’s currency dropped sharply against the single currency after it was revealed that Lloyds was forced to abandon a move to withdraw from the U.K. government’s asset protection plan, underlining the fragility of the banking sector.
  
• Signs of weakness in the UK and global banking sector tend to hit sterling hard given the large role that the financial sector plays in the British economy.
  
• Additionally, public sector net borrowing in the UK increased to £16.6 billion in August, which although slightly less than market expectations, was the third largest monthly borrowed amount since records began, further dampening demand for sterling.
  
• By contrast, the eurozone current account improved in July to post a €6.6 billion surplus, at positive levels for the first time since February 2008, strengthening demand for the single currency.
  
• In trading this morning, the pound has slowed its rate of decline, as sterling found some support in a Rightmove survey that revealed positive data on house prices.

The kiwi continues to post fresh 12-year highs against the pound today despite a drop in risk appetite

The pound gained 0.2% against the kiwi yesterday, as investors felt that they could have gone too long on high yielding currencies.

• Sterling reversed its slide against a strong kiwi dollar, building on the bullish run of European equities.
  
• Investors were also concerned that the strength of the kiwi was a result of over buying and was set for a correction, which resulted in slight profit taking.
  
• However, the pound’s downward trend has continued again in trading this morning, with the pound briefly posting a low below the psychological 2.3000 level, as concern for the stability of the UK economy resurfaces.
  
• It was revealed today that Lloyds did not have sufficient capital to spurn a government led asset protection scheme, which has sent the pound plunging, and is currently trading 0.5% down against the kiwi.

The pound has relinquished gains against the aussie yesterday and has continued to slide further today

Having gained steadily throughout the day, the pound lost ground in the afternoon as global equities stumbled, eventually closing 0.13% down.

• Sterling was able to reverse its slide in early trading yesterday, as the aussie fell victim to light profit taking, with investors forecasting that the higher-yielding currency may be unable to sustain its bullish run.
  
• However, the pound turned negative as reports that British regulators had set tougher-than-expected terms on Lloyds’ proposed exit from a government scheme.
  
• The report strengthened claims about the ongoing fragility of the British economy and allowed the aussie to recoup losses.
  
• Overnight, Asian markets followed those in the US in turning negative, pulling commodity prices down, however sterling has failed to capitalize on weaker demand for higher-yielding assets, currently trading 50 cents down for the day.

The single currency continued to advance yesterday, but has slid sharply today as investors covered short positions

The single currency advanced for the fourth straight day yesterday, reaching its highest point since September last year at 1.4768.

• Risk appetite was maintained yesterday, as better-than-expected unemployment claims in the US and strong building permits figures climbed to their highest point since December 2008.
  
• Additionally, the euro was pushed higher as the Philadelphia Fed business index rose to 14.1 points in September from 4.2 in August, beating market expectations of an increase to levels around 8.0, spurring investors to sell the greenback and buy higher-yielding assets.
  
• Movements in the markets though were relatively muted, with the euro struggling to break through the 1.4750 level.
  
• Some analysts are now hypothesizing that the dollar could be replacing the yen as the new carry trade, explaining its recent weakness.
  
• However, the selling of the greenback has abated today, allowing it to edge back up against the single currency, as investors cover short positions in the wake of the dollar’s slide during the week.

Dollar recovers over a cent against the pound as risk appetite eases

The pound relinquished gains yesterday as US markets fell for the first time this week, with the price closing down 0.3% at $1.6451.

• Sterling initially edged up against a weak dollar, as higher equities buoyed investor sentiment, with the FTSE on a five day rally.
  
• The dollar slipped further after data showed US housing starts and building permits in August rose to their highest level since November, raising risk appetite.
  
• Additionally, the Philadelphia Fed business index rose substantially in September, enabling the pound to briefly stretch over 1.6500.
  
• However, the dollar recovered it losses as US equities fell, with t he Dow Jones falling 0.08% and the Nasdaq down 0.30%.
  
• The greenback has continued to rally this morning, as investors reacted negatively to news that the FSA said that Lloyds Banking Group did not have sufficient funds to spurn the government’s Asset Protection Scheme.
  
• The dollar has already recovered over a cent (0.8%), as investors also cover short positions, with the price currently trading around 1.6340.

Sterling slides sharply on retail data and UK bank worries

The pound slid 0.5% against the single currency yesterday, as weak economic data and news concerning Lloyd’s bank reduced demand for sterling.

• Sterling wiped out early slim gains against the single currency after surprisingly weak retail sales data reinforced the view that UK interest rates will stay at record lows for some time to come.
  
• Retail sales remained unchanged in August from July, to disappoint market expectations of a 0.2% monthly increase, a sign consumers are cutting back on spending as unemployment rises.
  
• Separately, a survey from business group, the CBI, found that orders for UK manufactured goods remained weak , further dampening demand for sterling.
  
• However the real blow for sterling came following news that the UK had set tougher-than-expected conditions to the potential exit of Lloyd’s bank from a state-run scheme to protect its assets.
  
• The pound has continued to slide sharply this morning, already posting an intra-day low of 1.1098, as investor sentiment in the UK economy weakens further.