Sterling defies gravity
It was as though investors wilfully ignored the economic data on Monday. Perhaps they were diverted by America's pre-midterm-election excitement. Perhaps they just had no clue as to what to do for the best. Whatever the reason, the rand pushed ahead as half a dozen of the majors fell back and sterling defied gravity.
The US and Canadian dollars, the Northern Scandinavian crowns, the Japanese yen and the Swiss franc were clustered together ahead of London's opening this morning. All six were within a dozen or so ticks of one another, about 0.5% lower against the pound. The South African rand was 0.6% ahead of sterling, supposedly on increased risk appetite, though that appetite evidently did not extend to the Australian and NZ dollars: the Aussie was just about flat against sterling and the Kiwi was half a cent lower.
Britain's services sector purchasing managers' index fell from 53.9 to 52.2, missing forecast by more than a full point and touching its lowest level since immediately after the Brexit referendum. Yet sterling hesitated only briefly before zig-zagging to a four-week high against the euro. Investors fancy they can smell a Brexit deal in the air and that seems to be all they care about at the moment.
US dollar defies PMIs
America's two services PMIs came in higher than expected, as did Markit's composite measure. The dollar showed barely any reaction, pausing only momentarily in its retreat. Investors were appreciative enough of Friday's strong employment data but were completely unmoved by yesterday's good numbers.
Markit's services PMI and the ISM's measure both beat forecast at 54.8 and 60.3 respectively. The ISM noted a 105th consecutive month of growth. And investors seemed not to notice.
They appeared much readier to focus on Brexit deals which have not yet been signed. The prime minister will hold a cabinet meeting today in which, it is assumed, she will pressure the Brexiteers to fall in with her plan. That might be easier said than done, especially in view of the taoiseach's latest comments.
The turn-out for today's US mid-term elections - which will choose the entire House of Representatives and a third of the senate - is expected to be higher than usual. The outcome is impossible to predict, and may not be clear by the time London opens on Wednesday, but it will be important to the US economy and the dollar.
With a single party controlling the White House and both chambers of Congress, the president can to a large extent do what he wants. Few would doubt that his measures to date - notably last year's tax cuts - have been positive for the economy and the stock market.
Were the Republicans to lose control of the House, as the opinion polls reckon is likely, the presidential juggernaut would grind to a halt amid a sea of hostile Representatives. In the unlikely event that the Democrats were also to win a Senate majority, the administration would find itself in the same gridlock as that suffered by president Obama. That would not be obviously positive for the dollar.