An unspectacular win

Sterling shared first place among the major currencies on Monday. The Northern Scandinavian crowns and the Canadian and Australian dollars were up there alongside it. Essentially, it was a reversal of Friday’s risk-off moves, while the Japanese yen was relegated to last place.

The Martin Luther King holiday in the United States contributed to a relatively thin market with generally modest ranges. Just 0.5% separated the front of the pack from the rear and sterling’s average gain was an insignificant 0.1%. Ahead of the yen the US dollar was down by 0.3%, narrowly beaten by the Swiss franc and NZ dollar.

There were no important economic statistics to influence the action. Italian inflation was steady at -0.3% and in Rome, Prime Minister Giuseppe Conte survived the first of two parliamentary votes of confidence. The second, in the Senate, comes today. In Canada, the pace of housing starts slowed in December. Despite the dampening effect of the tragic pandemic, housing starts in 2020 still exceeded the 2019 total.

Currency battles

The USD and the EUR are the subject of discussion today, not as a result of where they have gone but because of where their proprietors would like them to go. Or not to go. With the dollar, the incoming Treasury Secretary promises a tight-lip strategy. As for the euro, the European Commission wants to strengthen its international role.

Janet Yellen, the erstwhile chair of the Federal Reserve, will face a Senate confirmation hearing today ahead of her appointment as SecTreas. Inevitably she will be asked whether she advocates the “strong dollar” policy that has been there or thereabouts since the last century. Ms Yellen is expected to say she does not favour a weak dollar and that she believes its value should be left to the market. She is also likely to reserve to herself all official government comment on the value of the currency.

In Brussels the EC will today reveal its plan to boost the euro as an alternative to the USD. The aim will be “to erode the dominance of the US dollar and to insulate the bloc from financial risks, including US sanctions”. It has taken the EU a couple of years to decide how best to insulate itself from politically-inspired US financial caprice.

Economic sentiment

Today’s agenda consists once again of mostly humdrum economic data. The theoretical highlights are NZ business confidence, German and Eurozone investor confidence and Australian consumer confidence.

NZIER’s Quarterly Survey of Business Opinion, released overnight, delivered the best result in two years following “a further improvement in business confidence in the final quarter of 2020”. Australian new home sales had another stellar month in December, beating November’s result by 32.5%. ZEW reports this morning on economic sentiment – institutional investor confidence - in Germany and pan-Eurozone.

The figures after lunch cover Canadian manufacturing and wholesale sales, NZ dairy prices and US international investment flows. This evening Bank of England Chief Economist Andy Haldane will be “in conversation” with Alan Rusbridger, who for 20 years was the editor of The Guardian newspaper.