Correction or bear raid?

Nobody predicted on Tuesday morning that sterling was about to give back its Easter windfall gains. Perhaps that is why yesterday’s move was so comprehensive, with the pound losing an average of 0.9% to the major currencies.

Sterling was steady overnight at its lower levels. The Swedish krona had the best run, strengthening by an average of 0.7%. As with the pound’s decline, there was no clear reason why that should have been the case. Behind the krona there was little to separate the euro, the Swiss franc and the Japanese yen, all of them up by around 1.1% against the pound. Canada’s dollar was in the penultimate slot, a third of a cent ahead of sterling.

Technically, the pound looks vulnerable. At the time of writing it is testing support at US$1.38 which, were it to fail, would make room for another half-cent fall. Against the euro the next obvious support is around €1.1550. The real question is: was yesterday’s drop simply a correction to three months of upward progress or are the sterling bears back in charge?

Little else

Maybe it would have helped the pound if there had been some data or commentary to distract investors from its decline. There was none.

There were four sets of European ecostats before lunch. Spanish unemployment fell below 4 million after the third largest monthly drop in the history of the series. Italian unemployment increased from 9% to a provisional 10.2%. Unemployment in the Eurozone was in line with forecast and unchanged at 8.3%. The Sentix measure of investor confidence improved by eight points to 13.1, a 32-month high. 

In the United States the Job Openings and Labor Turnover Summary “JOLTS report” showed 7.4 million job vacancies at the end of February, a two-year high. New Zealand’s fortnightly GDT index of dairy prices was up by 0.3%.

PMIs and the Fed

The focus during London’s day will mainly be on the purchasing managers’ indices for the services sector, which were delayed by the Easter break. This evening investors will be inspecting the minutes of the Federal Open Market Committee.

Australia opened the batting this morning with the ANZ index of consumer confidence, which suffered the largest fall since March last year. Two key factors were the lockdown in Brisbane and the end of the JobKeeper furlough programme. Australia was also first out of the traps with its PMIs. AiG’s performance of construction index rose 4.4 points to 61.8, a record high. Markit’s services sector PMI was up by two points at 55.5. There are more PMIs from Europe this morning and Canada’s Ivey measure appears after lunch.

Other data this afternoon cover the balance of trade for Canada and the United States. The FOMC minutes will appear at 1900h. Investors and analysts will try to figure out just how serious the Fed is about keeping interest rates ultra-low for an indefinite period