Sterling upgraded to “average”
Although it was hardly a breakthrough week for sterling it was able to up its performance from mediocre to average in that, on average, the pound was unchanged against the other dozen most actively-traded currencies. It was also, by coincidence, at the midpoint of range that took the South African rand -1.1% lower while the Swedish krona scooped the pool for a second week, strengthening by 1.1%.
The week’s only consistent (under)performer was the rand, which brought up the rear on four of the five days. Sterling neither excelled nor embarrassed itself on any single day, though it did experience the unexpected and unexplained peaks and troughs that will continue to affect it as the Brexit process grinds its way slowly to a conclusion.
Except for manufacturing and industrial production, both of which declined in January, and the trade deficit, which narrowed, there were no significant UK economic data to drive the pound. The chancellor’s budget speech had no lasting effect on it and neither did the Scottish first minister’s call for another independence referendum, which hardly came as a big surprise.
But the rumour sell the fact
With even the Prisoner of Zenda now tweeting that the Federal Reserve will tighten monetary policy on Wednesday the only reason for investors to have become excited about last Friday’s US employment report should have been if it had been disastrously weak. Nevertheless, they managed to wind themselves up to expect that the closely-watched monthly increase in nonfarm payrolls would be much bigger than the 190k that analysts had predicted.
When the number did indeed come in well above forecast there was an air of anticlimax as if, having got what they expected, investors had lost interest rand wandered off. The dollar was able to add a third of a cent against the pound but that put it in no higher than fourth place for the week.
Hawks reported in Frankfurt
The euro was close to the top slot, missing out narrowly after getting two bites at the monetary policy cherry. The first was last Thursday when the European Central Bank president gave the impression that there was no longer any possibility of further rate cuts or increased quantitative easing. The second was on Monday when Reuters reported that the ECB’s Governing Council had discussed the possibility of a rate increase even before the asset purchase programme has run its course.
Nobody is holding their breath but it does appear that the ECB is no longer so committed to a race to the bottom. The euro strengthened by more than a cent against the pound.
The bad news
There are lots of things that could go awry this week. The Fed might decide not to increase interest rates after all. The prime minister might spook the market by initiating the Article 50 Brexit process. The US president’s budget outline, due this week, might be watered down for fear that the bold ideas set out during his campaign would not receive congressional support. If America’s debt ceiling is not either renewed or re-suspended the US government would face the prospect of running out of money. Anti-EU politicians could receive a high share of the votes in the Dutch general election.
The good news
The likelihood of all those things happening at once is remote.
Sarah, Senior Account Manager at Moneycorp
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