The greeback pulled back from its sharp sell-off on Thursday, as weak US economic data spurred a return to risk aversion.

• In early trading, the dollar continued to lose ground following the better-than-expected US growth data, however the GBP/USD rally was capped at 1.6600, and the UK currency pulled down steadily, eventually closing down 0.6% ay 1.6448.
• US markets went through losses on Friday, with financials and materials leading the path, as risk aversion returned after Thursday’s optimism, strengthening support for the greenback.
• On the macroeconomic front, data revealed that US consumer spending declined 0.5% in September, the largest decline since December 2008, further buoying the dollar rally.
• Positive manufacturing data from the Midwest in the afternoon failed to dent dollar buying in the markets and traders acknowledged that part of this may have been due to month-end flows into the US currency related to foreign portfolios.
• The US currency has continued to climb in trading this morning, currently half a percent up, as investors remain cautious ahead of big events this week, including interest rate decisions in the UK, eurozone and US.

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The pound continued to rally yesterday and is now poised to snap a three-month decline versus the euro, as the UK showed positive economic signals.

• Data from the Bank of England revealed that UK net consumer lending rose less than expected in September but the number of loans approved for house purchases did hit its highest level in 18- months.
• Mortgage approvals rose to 56,215 from a revised 52,970 in August, which is the highest level of approvals since February last year and marks a solid recovery from September 2008 when only 33,419 mortgages were approved.
• The more positive data saw traders trimming excessive short positions in the pound, enabling the UK currency to briefly extend gains over 1.12, and suggesting that the markets may have overreacted to the surprisingly weak GDP data last week.
• Analysts noted that the UK currency also benefited as the euro fought to stem its broad slide this week, as traders saw the slump in global equities earlier in the week as a sign to sell the single currency.

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The pound made up further ground on the kiwi dollar, gaining 0.65% after positive sales data supported evidence that the UK economy is still on the road to recovery.

• The sales data, which came in above market forecasts, encouraged investors to buy back into the UK currency, with the price briefly reaching above 2.20.
• Conversely, selling pressure remained on the New Zealand dollar after the nation’s Prime Minister expressed concern over the currency’s strength, and stated that there were few tools with which to deal with it.
• Higher-yielding currencies were also under pressure overnight as Asian equities turned negative, with Nikkei 225 losing over a percent, dulling demand for “riskier” assets.
• In trading this morning the pound has continued to rally, rising to a three-week high over 2.22 as a New Zealand business confidence survey unexpectedly undershot forecasts, weakening the possibility of a hawkish RBNZ rate statement to be made this evening at 20:00.

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Sterling edged up against the aussie yesterday, benefiting from improved UK sales data, which supported claims that the UK economy is recovering.

• On Monday evening, MPC member Adam Posen, following negative GDP data, stated that there were still signs of an economic recovery even if Britain is behind other countries in pulling out of the recession.
• His statement found support yesterday after the UK CBI sales showed month-on-month improvement, beating market expectations and buoying demand for the UK currency.
• The UK currency has pushed higher in trading this morning after investors pared bets of a steep rate rise in Australia after inflation data did not increase by as much as some had anticipated.
• The quarterly CPI figure came in at 1.0%, which tilted the markets away from pricing in a more aggressive upward rate movement at the next RBA meeting on Nov 3 rd.
• Currently the pair are trading around the 1.80 level, just below a three-week high for the pound.

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Sterling closed up against the dollar yesterday, but slipped back nearly a cent from its intra-day high after a survey showed that consumer confidence in the US disappointed market expectations.

• In early trading, the markets continued to take the pound higher with analysts noting that long term investors and Asian reserve managers were attracted by sterling’s one-week low.
• This trend was maintained as the UK CBI retail sales index advanced to a balance of +8 in October from a balance of +3 in September, the largest advance since June 2007, beating forecasts.
• There was also support for the UK currency as the oil giant BP reported third-quarter profits of $4.98bn (£3bn), which experts said “obliterated” market predictions.
• However, the dollar trimmed its losses in the afternoon after a survey revealed that US consumer confidence dropped in October. The index produced a figure of 47.7, substantially less than the 53.7 forecast, which cautioned traders against risky investments.
• The weak report bodes ill for the US economy indicating restrained consumer spending, and suggests that the recovery is not as entrenched as initially thought.

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In trading on Friday, the pound slipped back from two-week highs around the 1.8000 level against the aussie as a weak GDP figure dulled demand for the UK currency.

• A report showed that the UK failed to exit the recession in the third quarter of this year, giving the central bank more reason to keep enacting emergency measures to spur growth.
• The data showed that the UK contracted by a further 0.4%, disappointing expectations of a 0.2% expansion and firmly halting the pound’s progress.
• Where as in Australia interest rates have already been raised on the back of growing confidence in the economy, the UK may now be considering further loosening its monetary policies as recovery struggles to take hold.
• In trading this morning, the pound continues to fall, currently down 0.4% after the aussie received a boost from a Chinese report that suggested authorities were looking to diversify the country’s foreign exchange reserves.
• The report suggested that China may look to buy up euro’s and yen, which analysts said could also spill over into the aussie providing further demand.

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In an uncertain day for the UK economy, the pound lost as much as 2.0% to the euro on Friday, sharply reversing its recent rally to close down at 1.0862.

• Data revealed that the UK economy unexpectedly contracted by 0.4% between July and September this year, confirming that the UK is still in recession.
• Quarterly growth of 0.2% had been expected, although expectations had been tempered by recent figures showing no growth in retail sales in September and a 2.5% decline in industrial output in August.
• Importantly, the disappointing GDP figures may now lead the Bank of England to consider the possibility of extending their asset purchase scheme in their November meeting in order to sustain the evidently fragile recovery.
• Recent comments from policymakers had led markets to believe that the UK would be tightening monetary policies, however the tone is likely to be quite different following Friday’s GDP figure.
• In trading this morning, the pound remains under pressure with investors continuing to sell the UK currency following last week’s disappointing data.

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Data this morning has run significantly against market expectations, confirming that Britain is still in a recession. The UK’s third quarter GDP figure was revealed to be a 0.4% contraction, which now means that the UK has suffered 6 consecutive quarters of negative growth. Market participants had speculated that the UK economy would grow by 0.2% in the months from July to September and had taken the pound slightly higher this morning.

There has been data recently though that points to this disappointing figure. Data in early Ocotber revealed that manufacturing production had fallen by 1.9%, significantly below forecast and this has clearly weighed heavily on overall output. In addition, yesterday’s UK retail sales figures, showed that there was no growth in High Street activity in September, which was a further warning that the economy may not yet be expanding.

Investors will now be looking ahead to the Bank of England’s next policy meeting on the 5th November, where the members will have to seriously consider the possibility of extending their asset purchase scheme. Recently, we have seen G20 countries preparing to make steps to remove monetary stimulus measures as the global recovery strengthens, however the BoE still clearly has a long way to go before such steps can be taken. Even dovish market participants were not expecting Britain’s economy to have contracted by as much as 0.4%, a figure that truly underlines the fragility of the recovery.

As the news was reported, the pound dropped a full percent against both the euro and the dollar, as investors hurried to sell their sterling. Looking to the short and even medium term, the UK currency will remain under heavy selling pressure, with confidence in the economy shot. That we are still in a recession and with the possibility of further QE now back on the horizon, investors will see little hope of an interest rate rise in Britain even into 2010, which will heavily on the value of sterling.

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Having given up ground to the UK currency in early trading, the kiwi rallied steadily through the afternoon, to close marginally up at 2.1833.

• The pound found support yesterday after the BoE’s policy minutes revealed no direct discussion over further loosening the current monetary policy.
• In the wake of the news, sterling posted an intra-day high of 2.2074 as investors grew more confident in the outlook for the UK economy.
• However, the New Zealand dollar capped its losses as Alan Bollard, governor of the Reserve Bank of New Zealand, in a speech appeared surprisingly reserved over the recent appreciation of the kiwi dollar.
• Mr Bollard said that kiwi strength was “not necessarily an obstacle to raising the cash rate,” encouraging investment in the higher-yield currency.
• In trading this morning, the New Zealand dollar has weakened, enabling the pound to advance back towards 2.20, as Chinese data failed to do more than meet market forecasts, giving traders a reason to cash profits.

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Sterling dipped slightly against the single currency, relinquishing gains in the afternoon as US equities slipped back, closing the day down just 0.1% at 1.0958.

• In early trading, investors picked up on comments from the ECB President who added to remarks from other eurozone officials expressing worries about the strength of the single currency.
• In response the markets took the euro slightly lower, enabling the pound to reach up over 1.10, near Monday’s 3-week high.
• In addition, the pound gained slight support after the UK public spending deficit in September fell short of market expectations, buoying investor sentiment.
• However, the euro trimmed its losses in the afternoon as global equities turned negative and investors cautioned over taking long positions ahead of a speech by Bank of England Governor Mervyn King in the evening.
• In trading today, the pound has broadly strenghtned as the MPC minutes from their latest meeting sounded a relatively positive tone. Currently the UK currency is trading one percent up on the single currency, approaching €1.11.

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Sterling suffered early losses against the euro yesterday after a BoE member hinted that the QE programme should be extended, but the pound recovered to close the day on level footing.

• Adam Posen stated that the central bank should continue its quantitative easing programme as the financial system has yet to show signs of a sustained recovery.
• He added that he was unconcerned about the possibility of further monetary stimulus risking a rise in inflation.
• His comments appeared to eclipse positive house price data from property website Rightmove, which showed that asking prices for homes in England and Wales were up on an annual basis for the first time in more than a year in October.
• Posen’s dovish remarks contrast with those of fellow MPC member, Paul Fisher, who last week suggested that the BoE may be considering drawing its QE programme to a close.
• However, the UK currency rallied strongly in the afternoon, buoyed by surging equity markets, which took their lead from positive US corporate earnings.

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Sterling managed to close last week at a near two-week high of 2.2056 against kiwi, as the UK currency continued to build on support from a BoE official.

• The ailing pound managed to build on Thursday’s gains, rallying a further 1.2% against the kiwi on Friday, in the wake of a Bank of England policy maker signaling satisfaction with the impact of the central bank’s quantitative-easing strategy.
• Investors took the opportunity to take strong profits that had been built up earlier last week, taking the sterling / kiwi price back over 2.20.
• However, analysts warned that the fundamentals for the pound are still negative, with interest rate differentials favoring high-yielding currencies.
• This week’s minutes of the Bank of England meeting may also reinforce the fragile nature of the economic recovery, and the likelihood of rates remaining at this low level for some time.
• Indeed in trading this morning, the pound has relinquished much of the ground it had recovered, already two cents down on the day as confidence remains high in the New Zealand economy.

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The US currency snapped a four-day losing streak against the euro, rising from a 14-month low, as investors cautioned their risk activity following further corporate earnings reports.

• The dollar strengthened as Bank of America earnings fell short of expectations, sparking profit taking in the euro, as well as higher-yielding currencies.
• The Bank reported losses of $1 billion in the third quarter, which sent equity markets down having rallied on the more positive earnings of other major US banks and corporations earlier in the week.
• This report aided the dollar, strengthening haven appeal and bringing the US currency up from multi-month lows against the euro.
• In addition, the greenback found support as data showed that US consumer sentiment eased in October, disappointing market expectations.
• One analyst stated that if the pound can bounce, then the markets must be wary that the dollar can also. The bounce in the UK currency increases the risk of a broad bounce in the dollar, even if it may only be a short- term reprieve.

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Sterling’s rally against the euro persisted on Friday, albeit with slightly less momentum, with the price closing the week at 1.0971, up 0.8% on the day.

• Sterling’s volatile run continued with a modest climb at the end of last week, as investors squeezed what more they could out of a rally that is expected to fade.
• Comments from BoE member Paul Fisher breathed some life into the pound, which has come under heavy pressure in recent weeks, when he stated that the quantitative easing programme is having its desired effect.
• His remarks built on those of Charles Bean earlier in the week and were seen as a departure from the Bank’s hitherto-drab assessments of the UK recovery and relaxed opinion of sterling’s decline.
• Investors reacted positively to the words, feeling that they may have been too quick to price in a further extension of QE into the market.
• In trading this morning however, sterling has slipped back, currently hovering just above 1.09, as investors resume selling the UK currency after another BoE member this time spoke of the need to continue the asset purchase programme.

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The pound achieved a ten-day high against the kiwi yesterday, as bullish comments combined with profit taking to bring the UK currency off multi-month lows.

• The UK currency was buoyed by comments that quantitative easing is in fact having its desired effect and that the MPC may not need to extend QE in their next meeting as many has speculated they would.
• The news triggered a wave of profit taking, pushing the sterling/kiwi price up two and half cents on the day to close at 2.1849.
• There was positive news from the US yesterday in the form of corporate earnings, in particular, Goldman Sachs and Citigroup, but the rise in risk appetite failed to assist the higher-yielding currency as investors chose instead to lock in profits.
• The pound has extended its climb in trading this morning, currently edging back over 2.19 as investors continue to profits ahead of the weekend.

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The aussie edged higher yesterday as continued strong demand for the high-yielding currency offset positive employment data in the UK.

• The UK currency found early support following better-than-expected employment data that revealed the rate of people claiming benefit allowance was declining.
• However, the news was unable to buoy a broadly weaker pound, with investors continuing to be attracted by the recent rate rise and general positive sentiment surrounding the Australian economy.
• The aussie also took advantage of rallying equity markets, which took their lead from better-than-expected quarterly earnings at JP Morgan reinforcing the notion that economic conditions are improving.
• In the early hours of this morning, the Reserve Bank of Australia chief made a hawkish speech that has provided a boost to high-yielding currencies. The broad dollar sell off that has ensued has prevented the pound from sliding further against the aussie, with the price currently hovering below 1.75.
• Sterling has also received a boost this morning in the wake of positive words from BoE policymaker Paul Fisher who said that he felt confident that QE was working

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The pound reversed its three-day slide against the euro as a surprise dip in a German economic sentiment index offset weak UK inflation data.

• In early trading, sterling was undermined by a declining inflation rate, which prompted further speculation that interest rates could be on hold at 0.5% until 2011 and sent the UK currency to a six-month low of 1.0628.
• The Consumer Prices Index (CPI) dropped to an annual rate of 1.1% in September from 1.6% in August. Meanwhile, the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, fell, to -1.4% from -1.3%.
• However, the pound rebounded strongly after the “positive signs” in the eurozone began to fade, with the German ZEW measure of investor sentiment unexpectedly falling after three months of gains.
• Additionally, the pound was given slight support in the afternoon after the BoE Deputy Governor spoke more positively about the UK recovery, subduing rising concerns over the health of the economy.
• Investors took the opportunity to lock in profits, allowing the pound to rally up from session lows to close up at 1.0718.

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The Australian dollar continued to push higher yesterday, advancing over a cent as sentiment towards the higher-yielding currency remained positive.

• Commodity currencies, such as the aussie, made progress yesterday in line with stronger prices for oil and metals.
• Rallying global equity and commodity markets encouraged the rise in risk appetite in the market, which heightened demand for the aussie dollar.
• In the UK, the market still holds the view that further quantitative easing could be announced in November, which has put substantial pressure on the UK currency as other major economies look to wind up stimulus measures.
• In trading this morning, the pound has halted its steep decline, with the price currently flat as a weaker-than-expected business confidence survey stemmed demand for aussie assets.

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Traders continued to sell sterling yesterday, pushing the UK currency down to a five-month low against the dollar, eventually closing at 1.5797.

• The pound lost ground after an economics and business report forecast that sterling could fall as low as $1.40 against the dollar.
• The report found that interest rates in the UK were likely to remain at record lows for some time and would remain at just 2.0% until 2014, which would put the country’s yield well behind other major economies.
• Traders also continued to speculate that the Bank of England might increase the value of its quantitative easing policy beyond the current £175bn, in stark contrast to the prospect of similar special stimulus measures being wound down in other economies.
• In trading this morning sterling has edged lower, as investors await details of the UK’s inflation rate, which is predicted to fall to 1.3%. Should the rate fall below 1.0%, the governor of the BoE, Mervyn King, must write a letter explaining the fall, though the time of this release is undisclosed.

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The pound maintained its downward trend yesterday, losing a further 0.6% as a British report cast doubts over UK recovery prospects.

• The outlook for global monetary policy shaped action on the foreign exchange markets on Monday, with sterling the main casualty.
• A report from the Centre for Economics and Business Research predicted that UK interest rates would remain at their historic low of 0.5% through 2010. The report also forecast they would stay below 2% until 2014.
• That would be likely to leave sterling the lowest-yielding major currency at a time when interest rates outside the UK look set to start rising, which added selling pressure to the fragile pound.
• In trading this morning, the UK currency has continued to lose ground, with a positive housing price survey failing to buoy demand.
• Sterling may find some support today should the Consumer Price Index reveal a slightly higher inflation rate at 09:30BST. Gains may be short lived however, with forecasts predicting an upbeat German economic sentiment survey, figures of which are released at 10:00BST.

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