Poking the bear
In the last four days, sterling has alternated between the front of the major currency field and the back. On Wednesday and overnight, it shared last place with the euro, for an average loss of 0.3%. From the beginning of the sequence last Friday morning, the pound is on average unchanged.
Since the beginning of time it has been the misfortune of sterling to be the currency of first resort for speculators. If nothing else is going on they can always rely on the pound to provide a bit of action. Like a bear in a cage, it will normally respond to a prod, even if it has nowhere to go. There has been more than one prod this week yet, because they have come from all sides. The tormented pound has no clear idea of where investors want it to go. And that is because investors themselves are unsure.
Lockdowns or Covid spread? Infections or vaccines? Brexit deal or no deal? The importance of each side of every factor looks different every time investors examine it. On Wednesday, they were on balance unenthusiastic about the pound but they were equally uninspired by the euro and only fractionally keener on the Swiss franc.
Consumer price index data from Britain, the Eurozone and Canada delivered no shocks. Although they were all below target, the perception was that most have the potential to move higher over time. The Australian employment were stronger than forecast, emphasising the unpredictability of the data.
Britain’s 0.7% headline rate of inflation came with a health warning that it is artificially depressed by the temporary reduction of VAT for the hospitality sector. Eurozone inflation was steady at -0.3%, with national variations between Greece’s -2.0% and Slovakia’s 1.6%. Canada came in a touch higher than expected at 0.7%, a seven-month high.
The Australian employment data showed unemployment rising to 7.0% even as the participation went up to 65.8% with the addition of 179k jobs. The split between new full-time and part-time jobs was a fairly even-handed 97k to 82k. Investors were unimpressed and the Aussie went nowhere.
The European Council will meet on Zoom this evening to discuss the tragic Covid-19 pandemic. They had been hoping to examine Britain’s post-Brexit trade deal but that is not be possible at the moment.
This morning ECB President Christine Lagarde set out to the European parliament the bank’s intentions in response to the “serious circumstances” with which it is confronted. As always, she would like politicians to provide more fiscal stimulus. Later today, the South African Reserve Bank is likely to keep its repo rate unchanged at 3.5% for a fifth month. US data after lunch cover jobless claims, existing home sales and manufacturing indices from the Philadelphia and Kansas Federal Reserves.
Friday begins with Japanese inflation, Australian new home and retail sales, and UK consumer confidence. UK retail sales and public sector borrowing come out ahead of London’s opening. Canadian retail sales appear at lunchtime, followed by the EC measure of Eurozone consumer confidence.