Only on two days in the last three months was sterling the top-performing major currency, once in early June and again yesterday. In neither case was there any obvious explanation for its success. Success it was though: the pound strengthened by an average of 0.7%, adding half a US cent, half a Swiss cent and three quarters of a euro cent.
As always, in the absence of an obvious reason commentators have had to fly a variety of kites to justify the pound’s move and their own existence. The most popular argument is that the halibut dinner shared by UK and EU Brexit negotiators is evidence of shared understanding and imminent agreement. It conveniently ignores the Prime Minister’s reiterated ultimatum to the German Chancellor that he is prepared to press ahead with a no-deal Brexit.
Another possibility is that investors are optimistic about Chancellor Rishi Sunak’s interim Budget this afternoon, which comes after Prime Minister’s questions. There are at least as many guesses about what he will say as there are justifications for sterling’s upward progress.
Not making a difference
Tuesday’s economic data did not get investors very far. Lower UK house prices were largely a by-product of the lockdown. Canada’s stronger-than-expected Ivey purchasing managers’ index did not help the Loonie. Written and oral anecdote made similarly little difference.
The European Commission’s Economic Forecast opened up with the cheerful heading, “A deeper recession with wider divergences”. It predicted an 8.75% contraction in the euro zone economy this year, followed by a 6% expansion in 2021. Perhaps out of habit, the forecast also covered Britain, which is not even in the EU. The forecast there is for growth of -9.75% this year and +6% next, assuming continued frictionless trade with Europe, but “the risks to the forecast are predominantly to the downside”.
Three US Federal Reserve honchos made on-the-record comments. Cleveland President Loretta Mester spoke of slowing activity and a need for more policy help. Atlanta’s Raphael Bostic said businesses and customers were “getting worried” and might need additional support. Vice Chairman Richard Clarida repeated his mantra that “there’s more that we can do; there’s more that we will do”.
Waiting for Angela
More than once in the last couple of weeks the Prime Minister has responded to questions about the economy with, “Wait for Rishi”. Those questions will presumably be answered this afternoon. On the wider stage (following social distance rules of course) the German Chancellor will address the European Parliament an hour or so later.
The rotating presidency of the Council of the European Union will be Angela Merkel’s for the next six months. She will set out today what she hopes to achieve during her term. A key feature will be the €750 billion coronavirus recovery plan that is still awaiting the approval of individual member states.
Useful ecostats are even more scarce today than they were on Tuesday. So, as far as sterling is concerned, it is a matter of waiting for Rishi.