In this week's
update:
STERLING RIDES MOST OF THE BLOWS
Poor economic statistics and unhelpful comments rain down on sterling. Strong employment numbers allow the Canadian dollar to end the week on a firm note.
It was another losing week for sterling, costing it two cents against the Loonie. The mid-week low was below $1.54 and Friday's best effort at $1.55 was not good enough. It opened in London this morning at $1.54, looking pressurised.
In a dull week for hard data the British economy did not have a whole lot to say for itself and what it did manage to scrabble together was not particularly edifying. Two house price indices, one from the Royal Institute of Chartered Surveyors and the other from estate agents' website Rightmove, damned the property market with faint praise. The RCIS house price balance, which compares the number of members reporting higher prices with those reporting lower ones, fell from 32% to 17%; still positive but more reservedly so. Rightmove's index of asking prices went up by 0.1%; positive buy only by a technicality. UK industrial production figures were a bigger disappointment and took sterling to the lows of the week. Production (manufacturing, mining and energy lumped together) fell by -0.4% in January. Manufacturing alone was down by -0.9%. January's trade deficit was £8 billion, the biggest since August 2008. Between August '08 and January '10 Sterling's trade-weighted value became 23% weaker yet imports were up and exports were down. The significantly more competitive currency is still not having any positive effect on the balance of trade.
Sterling also had to contend with unhelpful comments from several quarters. Credit ratings agency Fitch was 'uncomfortable with the fiscal adjustment path set out by UK authorities' and looked for 'more credible and stronger fiscal consolidation plans during 2010. Credit Suisse anticipated that UK banks, collectively, would have to reduce their balance sheets by more than £500 billion over the next three or four years in order to meet new regulations. The prime minister reassured investors that Britain's AAA credit rating was solid but not all of them were convinced, especially the researchers at UniCredit Bank who predicted that the government would have problems selling all the bonds they need to shift to finance the budget deficit.
Canada's economy seems to have got off to a good start in 2010. There were not so many Canadian ecostats but they were at the strong end of expectations. February's housing starts came in at 197k, 8,000 more than predicted. Capacity utilisation - the activity level of factories - was a percentage point higher than expected at 71%. January's balance of trade showed a $800 million surplus.
Strongest of all was Friday's employment report. The Canadian economy added 21k jobs in February, well above the expected 17k, and the unemployment rate fell from 8.3% to 8.2%. The news was worth an instant cent to the Canadian dollar, only half of which it later had to hand back. Behind the data, the Canadian dollar's other advantage was an upswing in investors' appetite for risk. They were buying shares and 'risky' currencies in preference to the 'safe-haven' yen and US dollar.
Sterling surprised many with another refusal to lie down last week despite a string of potentially damaging developments and data. However, as long as the opinion polls continue to indicate a hung parliament investors will continue to fear that even after a general election Britain's government will be unable or unwilling to tackle the budget gap. Buyers of the Canadian dollar should hedge 50% of what they will need. If the money is required in the near future they should consider covering the whole amount.
For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.
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