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Politics prevalent

Happy anniversary

Three years after the Brexit referendum, and four months before Britain leaves the European Union, sterling is still able to crack the occasional smile. On Friday its little triumph was lower-than-expected public sector net borrowing, down from April's £6.15 billion to £4.46 billion in May. The pound firmed by an average of 0.1%.

The previous day's UK retail sales data, while far from brilliant, at least looked respectable relative to analysts' forecasts. Excluding fuel, sales were only 0.3% lower on the month and altogether they were up by an annual 2.3%. Sales increased by 1.6% on a quarter-by-quarter basis.

In theory, the Bank of England's monetary policy announcement should have made no difference to the pound. The committee voted 9-0 to leave Bank Rate unchanged at 0.75% and said its next move "could be in either direction". Yet investors were disappointed that nobody voted for a higher rate. They were also conscious that the bank's downgraded forecasts for inflation - below the 2% target later this year - and growth - stagnation in the second quarter - were at odds with the notion of a rate increase any time soon.

The winner and the loser

In Friday's provisional PMI shoot-out the strongest and weakest readings both came from Germany, with services at  55.6 and manufacturing at 45.4. For Euroland the composite purchasing managers' index came in at 52.1. All but one of the European readings were above forecast; the US numbers fell short.  

It was political statements and developments that mattered more than statistics at the end of last week and over the weekend. At a global level, the US reports say they launched a cyber-attack on Iranian weapons systems in retaliation for shooting down a US drone and attacks on oil tankers that the US has blamed Iran for. At a local level a contender to be Britain's next prime minister attracted the attention of police following a domestic argument. In Europe EU leaders went back to the drawing board when they were unable to come up with a plausible candidate to replace EC president Jean-Claude Juncker.

Even the central bankers were playing politics. St Louis Federal Reserve president James Bullard explained why he voted for a rate cut and Minneapolis's Neel Kashkari said "aggressive policy action… is required to re-anchor inflation expectations". The New York magazine portrays the dovish Mr Kashkari as a possible future Fed chairman.

What to do today?

If investors have to rely on the official schedule of events and ecostats they will be sadly lacking in motivation. A comment by Reserve Bank of Australia governor Philip Lowe that sent the Aussie higher - has already come and gone.  

The short list of ecostats comprises IFO's survey of German business confidence, activity indices from the Chicago and Dallas Feds and, tonight, New Zealand's balance of trade. The European Central Bank's Sabine Lautenschläger will be speaking at lunchtime.

For sterling, three years into the Brexit process, things do not look so bad. The euro is under pressure because of growth and politics. The US dollar appears to have run out of oomph as a result of the downward tilt to interest rates. The yen was the weakest performer on Friday. There again, this column noted on 23 June 2016 that "investors are confident that Remain will prevail when the votes are counted tonight".   

GBP: BoE disappoints

GBP: BoE disappoints

EUR: Looking for leaders

EUR: Looking for leaders

USD: Fed bosses call for rate cuts

USD: Fed bosses call for rate cuts

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