Daily Brief

Freedom, but not as we know it

A gloomy start

"Freedom day" dawned bright and clear as the pound licked its recent wounds. After a relatively uneventful few days, sterling took a bit of a hit on Friday and over the weekend, as a result of concern about the soaring numbers of UK Covid infections and Downing Street’s short-lived attempt to circumvent its own self-isolation guidance.

There was nothing else to explain why the pound should be looking so gloomy on such a joyous occasion. Having been one of the joint leaders on Thursday-Friday, sterling was in the bottom group on Friday-Monday, alongside the Norwegian krone and the Australian and Canadian dollars. It was at least easier to discern why the pound’s partners in crime were under pressure. The Aussie was smarting from the growing criticism of what some say is the government’s poor management of Covid. The krone and the Loonie had to face the prospect of lower oil prices, as a result of OPEC’s to increase output from next month.

The gap between the winners and the losers was a little wider than in recent days but still quite narrow. Japan’s yen led the way, 0.4% ahead on average with the US dollar and euro snapping at its heels and the Swiss franc close behind them. The pound and its buddies lost an average of 0.3%.


Retail sales vs consumer confidence

There were three theoretically-important sets of economic data on Friday: euro area inflation, US retail sales and the University of Michigan index of consumer sentiment. In the event, none of them had any major impact on exchange rates.

The Eurozone inflation data almost never deliver a surprise, given that they are preceded by a provisional reading a week or so earlier. It was, therefore, not particularly interesting to investors that headline inflation in June was 1.9%, in line with the preliminary number. The 0.6% monthly increase in US retail sales ought to have been interesting, since it was much better than the forecast 0.4% decline. But it did nothing for the US dollar. The reverse was true for the provisional Michigan consumer sentiment index. It fell almost three points to 80.8, having been expected to improve slightly. Yet the dollar did not flinch.

This morning’s Rightmove house price index was the only ecostat that Britain brought to the table. It was quite punchy though: prices were up by 0.7% in July and 5.7% higher than a year earlier. The increase came despite a wind-down of the stamp duty break at the end of June.


RBA minutes

There are no ecostats today for investors to even try to get excited about. The most important event comes tonight with the minutes of the Reserve Bank of Australia’s monetary policy meeting.

Business NZ’s performance of services index was pretty good, but it is already done and dusted and, anyway, it had no positive impact on the Kiwi. At 58.6 it was not the highest ever but it represented a fourth consecutive month of expansion and was not a mile short of April’s 61.1 record.

A very short list remains for Monday. Eurozone construction output comes out this morning and America’s NAHB housing market index this afternoon. Japanese inflation appears tonight, followed by the RBA minutes and a rate decision from the People’s Bank of China.


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