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Sterling struggles again

Unusual moves

In an odd day, the pound moved lower despite the UK consumer price index data coming in quite a bit higher than expected. Sterling would have been the weakest performer had it not been for the Japanese yen retreating at top speed.

During London’s morning session the pound went almost nowhere, though there was a flurry of activity when the ONS published the consumer price inflation data for January. Headline CPI inflation accelerated from 1.3% to 1.8%, its highest level since July last year. The retail price index was also half a percentage point higher on the month at 2.7%, another six-month high. Sterling popped higher on the news before settling back: there is little realistic chance of the Bank of England responding with higher interest rates.

In the early afternoon, the pound headed lower. There was no obvious cause. Investors had all morning to appraise the government’s plan to restrict labour mobility so that cannot have been the problem. The inflation data were long gone, while there was similar mystery about the retreating yen, which fell 1.2% against the US dollar and lost 0.5% to sterling. Some blamed it on the recent weak Japanese data, some pointed to the country’s exposure to coronavirus and others argued that the yen’s safe-haven status had been lost.

 

Australian jobs

Another currency move that was not immediately intuitive came from the Australian dollar. A big rise in full-time employment was followed by a fall in the Aussie to an 11-year low against the US dollar. An increase in the participation rate pushed the rate of unemployment up from 5.1% to 5.3% despite the addition of 13.5k new jobs.

To compound the confusion, a rate cut by the People’s Bank of China also had a negative impact on the Aussie this morning. A reduction in the one year prime rate from 4.15% to 4.05% had been widely expected as a response to coronavirus so there was no positive reaction from investors.

The minutes of January’s Federal Open Market Committee meeting raised no eyebrows. They simply confirmed that the current policy stance is likely to persist “for a time” and that the “threat of coronavirus warranted close watching”. US data for housing starts and building permits in January both came in stronger than forecast. Canadian inflation was a touch higher than expected but made no difference to the Loonie.

 

Retail sales and PMIs

The UK retail sales data for January come out this morning, closely followed by the CBI’s industrial trends survey. Friday brings the public sector borrowing figure and the provisional purchasing managers’ index readings. The European Central Bank will publish the summary of its last monetary policy meeting.

UK retail sales are forecast to have rebounded 0.7% in January after falling 0.6% in December. A three-point improvement in the CBI’s industrial trends survey is expected, from -22 to -19.

The provisional PMIs are forecast to show manufacturers continuing to struggle in Japan and Germany, with weak performance in Germany keeping the pan-Euroland manufacturing PMI in the contraction zone below 50. Inflation data tomorrow are expected to put the headline rate at 0.7% for Japan and 1.4% for the euro zone.

GBP: Higher inflation no help to sterling

GBP: Higher inflation no help to sterling

JPY: Safe-haven status in doubt

JPY: Safe-haven status in doubt

AUD: More jobs, higher unemployment

AUD: More jobs, higher unemployment

CNY: PBoC cuts prime rate

CNY: PBoC cuts prime rate

USD: FOMC steady “for a time”

USD: FOMC steady “for a time”

EUR: ECB meeting accounts today

EUR: ECB meeting accounts today

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