Good morning. A headline on Bloomberg this morning appears to illustrate one of the consequences of currency misalignments; “Brazil Raises Duties on China-made Baby Dolls as Real Gains Hurt Toymakers”. It would be a good illustration were it not that the real/renminbi exchange rate today at 3.94 is not materially adrift from its position at 3.92 at the beginning of the year (strengthening by an insignificant 0.5%). Perhaps the Barbie and Cindy manufacturers in Brazil should examine their products instead of blaming spurious external influences.
Sterling’s performance on Wednesday shows that at least the short-term misalignments can correct themselves. The pound went down on Tuesday for no particular reason; it went back up yesterday because nobody could figure out why it had gone down. It collected a cent and a half against the US, Canadian and Australian dollars. Sterling did less well against the euro, the yen, the NZ dollar and the Swiss franc, where it is unchanged this morning from yesterday’s opening levels.
The ecostats had little bearing on exchange rates. An unexpected jump in German inflation saw prices rise by 1.0% in December and took the annual inflation rate up from 1.5% to 1.7% but it was not until a couple of hours later that the euro set off higher against the US dollar. The Canadian dollar dropped by a cent at midday. It had recovered entirely by the time Terranet’s house price index came out, showing a second monthly fall, after 16 consecutive increases, that took the annual rise down from 7.9% to 6.0%. The Loonie failed to react to the news.
Today’s figures are even fewer and further between. HSBC’s China manufacturing purchasing managers’ index is down by a point in December at 54.4 (perhaps hurt by falling demand for baby dolls?). Europe’s only input is from Italy, with business confidence and producer prices. Pending home sales and weekly jobless claims from the States wind things up for the London session. Australian private sector borrowing comes out overnight and Nationwide’s house price index might come out before things get going tomorrow.
With just two days of most dealers’ trading year to go they will not be desperate to get involved. Profit preservation will be the watchword. That is neither good news nor bad news for sterling but it ought to mean relative steadiness today.
