Dollar was weaker in trading yesterday, as strong equities boosted risk appetite

The pound climbed near a cent and a half, or 0.8%, against the US dollar, buoyed by positive UK services data and the Fed’s confirmation to keep rates low.

  • Sterling found support against a weaker dollar after a UK index of service industries, like its manufacturing equivalent released on Monday, rose in October to the highest level since the onset of the credit squeeze in August 2007.
  • The October figure came in at 56.9 versus 55.3 in September and a consensus forecast of 55.5. New orders also improved, suggesting that economic growth was gaining momentum.
  • The pound was able to extend gains in the evening after the Federal Reserve left rates unchanged and reaffirmed its commitment to keep borrowing cost low for “an extended period.”
  • The decision calmed fears among investors that the Fed may signal a tightening of policy following a positive GDP figure, and led to broad selling of the dollar.
  • In trading today, investors await the BoE announcement on quantitative easing. Some analysts note the outcome may see a split vote, with some of the more hawkish members voting for no extension, which may heighten sterling volatility.