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Austerity for sterling

More Brexit-related woes

Sterling ran into more than one roadblock on Tuesday. It was 0.2% behind the second-to-last yen, and down by an average of 0.5% against the other ten most actively-traded currencies. The pound lost one US cent and half a euro cent.

The spectre of Brexit was at the root of sterling's problems. It manifested itself in several ways. The Institute for Fiscal Studies described Philip Hammond's pre-Brexit Budget as "a bit of a gamble". Lloyds Bank's survey of UK businesses found confidence falling across the board to its lowest level this year. Standard & Poor's predicted that a no-deal Brexit would lead to recession.  Moreover, S&P says the risk of a no-deal departure is now serious enough to affect Britain's credit rating

All the while, there was no new word from Downing Street on the progress - or otherwise - of negotiations with the EU.  Investors felt obliged to fear the worst. As the sterling juggernaut rolled south, few of them saw any reason to get in its way. In time-honoured fashion the falling pound attracted new sellers.

Slower growth for the euro

Investors were so boot-faced about the pound that they almost forgot to punish the euro for Euroland's weak growth and confidence data. On almost every measure they were lower on the month and below forecast. Yet the euro strengthened by half a cent against sterling, also beating the yen and the Northern Scandinavian crowns.

Gross domestic product in the euro zone expanded by a provisional 0.2% in the third quarter, half the growth forecast by analysts. Of the five confidence measures tracked by the European Commission, four were lower and one - consumer confidence - was unchanged.  Growth in Italy stagnated in Q3, pouring petrol on the incipient debt crisis there.

The Canadian dollar was up among the leaders, helped partly by Bank of Canada governor Stephen Poloz. He told the Ottawa Parliament that people should accustom themselves to higher interest rates, suggesting 3% as "the new norm". The Loonie was up by 0.6% against the pound, a step behind the US, Australian and NZ dollars and the South African rand which shared the lead.

Inflation

Australia has already reported that headline inflation slowed to 1.9% in the third quarter (7), in line with forecasts. In France it was steady at 2.5% in October and for the euro zone as a whole it is expected to accelerate slightly from 2.1% to 2.2%.

There was consternation this morning when China released the first two purchasing managers' index readings. They showed manufacturing slowing from 50.8 to 50.2 - still positive but only just - and services slowing by a point to 53.9. 

The data coincided with the offshore yuan touching a ten-year low against the US dollar. Given the inevitably dampening effect of America's trade war on the Chinese economy, a weakening yen ought not to be a surprise, but nor would it be a surprise if the US president were to use it as an excuse for further punitive action.

GBP the biggest loser after multiple obstacles

GBP the biggest loser after multiple obstacles

EUR dented slightly by slower Euroland growth

EUR dented slightly by slower Euroland growth

CAD up there after BoC governor talks up rates

CAD up there after BoC governor talks up rates

CNH at 10-year low against the USD

CNH at 10-year low against the USD

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