Even though last week ended with Friday the thirteenth the news wasn’t all bad for sterling, as the pound pushed higher against the euro and US dollar following positive labour market figures in the US. New Zealand also had a good week, with the NZD reaching rare heights against the US dollar and the All Whites qualifying for the World Cup in a match against Bahrain.

So last week began with a rally in equity markets as the G20 pledged to maintain support for the global economy. This sent the Dow to a 15-month high and filtered its way around the world leading to a rise in risk appetite in foreign exchange markets. In the midst of all this volatility the pound has managed to maintain its recent trading ranges, with the slow process of currency diversification continuing to support the euro at present.

Sterling has remained well within recent ranges, gaining ground on the US dollar and yen this morning as the Japanese economy recorded growth in the third quarter. Last week the UK trade balance continued to widen and unemployment rose to 7.8%, pushing the pound lower, not helped by dovish comments from Mervyn King which led to speculation that the Bank is keeping the door open for further QE if necessary.

Sterling received a boost on Friday after eurozone GDP came in slightly weaker than expected, and this week we can expect some volatility as the consumer price index and retail figures are accompanied by the Bank of England’s inflation letter.

For the US dollar, weak labour market data early last week led to speculation that the US may record a contraction in the fourth quarter, and this sent exchange rates for the greenback higher. Equities rose to a 15-month high, as did Aussie currency rates against the US dollar on the back of the strength of global recovery.

US retail sales figures are due out today and these are expected to climb in October on the back of the “cash for clunkers” initiative. Markets are anticipating a 1% rise and this could lead to further gains for the higher yielding currencies at the expense of the US dollar and yen.

In the eurozone currency rates have remained strong after French and German GDP figures came out positive and risk appetite in the market received a boost. The German economy grew 0.7% in the third quarter while industrial output rose 2.7% in October. The French economy also grew, by 0.3% while the regional figure for the 16-nation zone was in the region of 0.4%. Although slightly weaker than expected, this failed to dent exchange rates for the euro and the ECB continues to hint at tightening of monetary policy in future.

Elsewhere the New Zealand and Australian currencies continue to strengthen, with the Aussie reaching a 15-month high against the US dollar over the last week. There is now growing concern down under over the strengthening currencies and market dynamics are exerting a large influence on currency exchange rates at present.

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