Broadbent's Uncertainty Principle
There were sighs of relief from sterling's supporters yesterday after it managed to suffer only small losses to the euro, the yen, the Swiss franc and the North American dollar. The pound was on average unchanged against the other ten most actively-traded currencies.
It is a sad sign of the times that investors mop their brows when the pound does not take a kicking. Bank of England deputy governor Ben Broadbent alluded to the situation in a speech at Imperial College yesterday afternoon under the slightly long-winded title "Investment and uncertainty: the value of waiting for news". Although he was speaking in the context of capital investment his argument applies also to currency: "A repeated series of cliff-edges, each of which is expected to be decisive but in reality just gives way to the next cliff, is more damaging for investment than if it had been clear at the outset that the process will take time."
As for a no-deal Brexit:"Deliberately choosing the outcome firms say they view most negatively is more likely to mean that capital projects that have so far been deferred are then simply cancelled". Whether by coincidence or otherwise, sterling moved lower during the 90 minutes after Mr Broadbent began his speech.
High to Lowe
Having come joint-last on Thursday and first over the weekend the Australian dollar found itself at the back of the field again overnight. Reserve Bank of Australia governor Philip Lowe was entirely responsible for its decline.
In a speech to the Economic Society of Australia Mr Lowe followed the time-honoured tradition of keeping the best bit until last: "A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks' time, we will consider the case for lower interest rates."
Mr Lowe's sentiment hardly came out of the blue but it was the clearest possible hint that the RBA will probably deliver a rate cut in two weeks' time. The Aussie reacted in a predictably negative manner, dropping a swift half-cent for a daily loss of 0.5%, just under one cent. And the poor old NZ dollar was dragged down too, as investors reasoned that a cut by the RBA might prompt a second one from the RBNZ.
Without central bankers' speeches investors would have had little to go on yesterday. The only vaguely relevant data were Euroland's current account and the Chicago Federal Reserve's national activity index.
The quantity - if not the quality - of today's ecostats will be greater. New Zealand has already reported that credit card spending in April rose by 4.5% from the same month last year. Next up is the CBI's Industrial Trends Survey of UK manufacturing activity.
There will then be four hours for investors to regain their composure before the National Association of Realtors reports on existing home sales in the States. The European Commission's measure of consumer confidence comes out in mid-afternoon and the quarterly NZ retail sales data appear tonight.