Daily Brief

Sterling on the defensive

4 minute read

The softest target?

It was a bear hunt with a difference on Tuesday. This time, the bears were doing the hunting and sterling (GBP) was in their sights. The pound limped off into hiding, down by an average of 0.5% and lower against just about everything, even the Turkish lira (TRY).

There was no proximate cause for sterling’s fall. It might be that investors suddenly became nervous about the UK political situation: a video showed Downing Street staff sniggering about the Christmas party that never happened, and there was fresh concern over the government’s handling of the evacuation from Afghanistan. But such matters have never worried investors before, so it was probably just that the pound looked technically vulnerable and they had nothing better to do.

The Norwegian krone’s (NOK) second day at the front of the field was no more easily explicable. A 1.5% rise for oil prices was not a compelling reason to buy the currency, even if sentiment is said to be improving in the market. Nevertheless, the NOK added an average of 0.5%, putting it 0.4% ahead on the week.



Three countries announced or updated their figures for gross domestic product in the third quarter of 2021. Two were weaker than forecast and one was exactly as expected.

South Africa’s GDP (ZAR) shrank by 1.5% in Q3 after four successive quarters of growth. The decline was more than the expected -1.2%. Civil unrest and Covid lockdowns were largely to blame. The rand nevertheless held steady on average against the major currencies. Revised data for Eurozone GDP (EUR) left growth unchanged and in line with forecast at 2.2%. Austria recorded the highest increase (3.8%), with France in second place at 3.0%. This morning, Japan (JPY) reported a larger-than-expected shrinkage of 0.9% for GDP in Q3. The EUR and JPY were flat against one another and fractionally lower on average.

ZEW’s index of German economic sentiment (EUR) was down by two points on the month at 29.9. The usual suspects were to blame: Covid and supply bottlenecks. For the Eurozone as a whole (EUR), the index improved by a point to 26.8. The US trade deficit (USD) was very close to forecast and narrower on the month, while in Canada (CAD) the balance of trade was bigger on both counts, and in surplus to boot. Canada’s Ivey purchasing managers’ index was up by two points at a seasonally-adjusted 61.2.


Canadian rates, Chinese inflation

Exceedingly slim pickings today offer almost no ecostats from Europe and North America. The main event is the Bank of Canada’s policy announcement this afternoon.

After three cuts in March last year, the Bank of Canada’s (CAD) benchmark target for the overnight rate has remained unchanged at 0.25%. In recent months, the central bank has spoken of a return to “normal” interest rates as the employment situation improves. Unemployment was last reported at 6%, close to pre-Covid levels. While that will probably not be enough to provoke a rate hike today, investors expect the BoC to hint at a move in the first half of 2022, Omicron permitting.

The day’s economic data cover French nonfarm payrolls (EUR), South African business confidence and retail sales (ZAR), and US mortgage applications (USD). Tonight brings NZ manufacturing sales (NZD), UK house prices (GBP) and Chinese inflation (CNY).


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