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More central bank patience

No no-confidence vote

Wednesday was another modestly positive day for sterling. It strengthened by an average of 0.1%, adding a third of a euro cent and losing a third of a cent each to the US dollar and Swiss franc. The single UK economic statistic was not as helpful as it might have been.

Public sector net borrowing in the latest financial year (April 2018 to March 2019) was £24.7 billion; £17.2 billion - 41% - less than the previous year and the lowest for a full year since FY 2001-02. In one sense it was an admirable achievement. However, the Office for Budget Responsibility had predicted little over a month ago that borrowing would amount to only £22.8 billion. So the numbers missed the mark by £1.9 billion.

Investors were more inclined to be positive about a political development. Prime minister Theresa May survived another attempt to drive her out of Downing Street. A coterie of Conservative backbench MPs tried to change the regulation which prevents a motion of no confidence within 12 months of the last one. The 1922 Committee ruled against shortening that period to six months, so Ms May is secure - if that is the correct word - in her position until December. 

Loonie swoons

Investors reacted badly when the Bank of Canada published its monetary policy statement, sending the Loonie a cent lower. They quickly reconsidered their decision, and over the following four hours it made a complete recovery. The euro was less fortunate, going down and staying down after German business confidence deteriorated.

The BoC statement was pretty much in line with what investors should have been expecting. There is no longer a bias towards tighter policy and the bank is indicating that its benchmark interest rate will remain at 1.75% indefinitely. Yet investors could not resist the Pavlovian impulse to mark down the currency. They had to force themselves to mark it back up again and it is unchanged on the day.

The euro's problem was more clear-cut and came, to a large extent, out of the blue. IFO's three measures of German business confidence all came in below forecast and lower on the month. IFO's summary began: "The mood among German managers became slightly gloomier this month." Not less confident, slightly gloomier. The euro is three fifths of a US cent lower on the day.

US durable goods and GDP

The day began with the Bank of Japan officially joining the list of "patient" central banks. It will keep interest rates at rock bottom "at least through around spring 2020". Sweden's Riksbank is also expected to leave policy unchanged this morning. There are few top-tier ecostats on the list for the rest of the week.

Today the CBI will report on manufacturing orders and tomorrow on retail sales. There are no other important UK data before the weekend. US durable goods orders are forecast to have risen by 0.8% in March, with non-defence orders excluding aircraft up by 0.1%. Tonight brings New Zealand's balance of trade, Tokyo inflation and Japanese industrial output and retail sales.

US first quarter gross domestic product stands almost alone on Friday's agenda. Annualised growth of 2.1% is expected.

GBP: Political stability pays

GBP: Political stability pays

CAD: Hesitates after BoC goes dovish

CAD: Hesitates after BoC goes dovish

EUR: Lower as a result of gloomier German firms

EUR: Lower as a result of gloomier German firms

JPY: Unaffected by prospect of low rates forever

JPY: Unaffected by prospect of low rates forever

SEK: Riksbank rate decision this morning

SEK: Riksbank rate decision this morning

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