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Range trading

Flat ground

There were no challenges for sterling to face at the end of last week, so no opportunity for trading algorithms to level it down. Thursday and Friday were moderately positive, compensating for mildly negative results on the previous couple of days and leaving the pound an average of 0.1% lower on the week; i.e. virtually flat. 

Range trading was the order of the week, as it has been for most of August. Cable is stuck in a range between $1.30 and $1.32 while the equivalent bounds for GBP/EUR are €1.1030 and €1.1150. Whatever dismay investors may have had about Wednesday’s dismal second quarter UK GDP data has been left in the rear-view mirror, on the basis that the recovery began in June. Compared with a month ago, the pound is an average of 1.6% firmer against the major currencies and unchanged against the euro. Its only losses – of 0.4% each – are to the SEK and NOK.

The biggest losers over that month have been the NZ and US dollars, down by 4.4% and 4.2% respectively. On the week, the Kiwi took the greatest hit, hampered by the Reserve Bank of New Zealand’s threat of negative interest rates. Curiously, the USD received no help from the steadily increasing friction in Sino-US relations, which the US president is escalating as part of his election campaign. 

Below a million

A sign of investors’ reticence about the USD was their failure to reward some good US ecostats on Thursday and Friday. They were forced to acknowledge that weekly jobless claims and core monthly retail sales were alright but they did not agree that they were good enough to justify buying the dollar.

Initial US weekly jobless claims were 963k, the first time in five months that the number had come in below a million. The retail sales numbers for July were not so indisputably positive, on account of the 1.2% headline rise missing forecast. However, the 1.9% ex-autos increase was stronger than expected, as was the 1.4% growth in “control group” sales. Even an above-forecast provisional Michigan consumer sentiment reading left investors unmoved. 

If the data could not persuade investors to support the USD, nor could they provoke them to sell the euro. They paid only lip service to Friday’s confirmation that eurozone GDP contracted by 12.5% in the second quarter. It was exactly the number promised by analysts.

Japan slows too

Gross domestic product in Japan shrank by 27.8% in the second quarter, or by 7.8%, depending on the methodology. It was the sharpest contraction on record, and made not a blind bit of difference to the yen.

The GDP numbers were very close to investors’ expectations and confirmed analysts’ predictions that Japan’s quarterly slump was smaller than its peers’. Less interestingly, other numbers this morning showed Japanese industrial production falling 1.9% in June and capacity utilisation increasing by 6.2% to 75.0. A one-month postponement of the NZ general election did not affect the Kiwi.

Investors will struggle to pull anything else useful out of today’s agenda. The New York Fed’s manufacturing index, the NAHB housing market index and TIC capital flows seldom make a difference to the USD and the same is true of Canadian investment flows to the CAD. There is arguably more potential tonight from NZ house prices, the NZ services PMI and the RBA minutes.

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