The pound posted strong gains against the dollar yesterday as risk appetite surged

Sterling traded strongly against a broadly weaker dollar, achieving a three-month high of 1.6842 as investors were given a green light to sell the greenback.

  • Rising risk appetite weighed on haven demand for the US currency as global equity markets rallied in the region of 2%, with the Dow Jones reaching its highest point this year.
  • The dollar also came under pressure in the wake of the G20 meeting held over the weekend. The statement boosted risk appetite by saying it was too early to exit from current economic stimulus policies but made no mention of exchange rates.
  • Furthermore, a report from the International Monetary Fund also weighed on the dollar as it named the US unit as a currency of choice for funding carry trades, in which low-yielding currencies are sold to fund the purchase of riskier, higher-yielding assets elsewhere.
  • The pound has reversed gains in trading this morning after Fitch Ratings said the UK is at the most risk of losing its AAA status among major economies.
  • The UK currency lost over a cent as the news was released, but is consolidating its position over 1.66 with overall sentiment toward the dollar remaining bearish.