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FX round-up: Risk appetite boosts euro, sterling

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Date: Wednesday 15 Oct 2008

LONDON (ShareCast) - Renewed risk appetite took the euro and sterling higher Tuesday but pressured the dollar and yen as the US government outlined its plans to restore its battered banking system.

Global markets enjoyed strong gains Tuesday with optimism high after initiatives across the globe for the banking system were explained. As a result traders sought higher yielding but riskier currencies such as the pound and euro and sold lower yielding currencies like the dollar and yen.

However as Wall Street’s burst of optimism petered out, and traders pored carefully over the plans, some risk aversion crept back in as traders worried about slowing global growth hitting company profits.

The greenback was also hit as short-term interest rates for dollars fell after collective government action to flood money into the crippled banking system.

Sterling continued its recovery against the greenback, which saw the UK currency hit a five year low against the dollar last week, as investors cheered the UK government's plan to pump £37bn into its troubled banking system.

Gloomy data showing surging inflation, falling retail sales and ever declining house prices was mostly overlooked.

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