The pound climbed just over two cents against a broadly weakened aussie dollar on Friday with a rise in risk aversion putting selling pressure on the higher-yielding currency.
- Weak data in the US and plummeting global equity markets enable the pound to gain as investors took the opportunity to cash profits in the aussie and retreat to safer assets.
- Analysts have recently noted that the rally in risky assets could come to an end. Conditions for perceived riskier assets to gain requires a flow of positive economic data combined with loose global monetary policies and low interest rates.
- The strong US GDP figure supported the rally in higher-yield currencies, but as the economic recovery shifts the balance in favour of tightening policy, it will likely signal the end of the rally in risky assets.
- However, the aussie is trading strongly again this morning, currently up over a percent, as investors bet that the Reserve Bank of Australia will raise interest rates at their meeting on Tuesday.
- Traders also said that Chinese data showing manufacturing activity at an 18-month high helped to mitigate some of the recent loss in risk appetite, bolstering aussie demand.