Weekly Brief

A lucky third place for sterling

7 minute read


Mixed results saw sterling lead the way last Friday and bring up the rear on Tuesday. There was no compelling justification for either of those; it was just another example of sterling’s uncanny ability to delight or distress its supporters at the drop of a hat. In the end it was almost a winning week for the pound as it took a very close third place behind the Canadian and US dollars, with an average gain of 0.5%.

The UK economic data were mostly constructive for sterling, if not quite as good as the most optimistic analysts had predicted. Nationwide’s house price index went up by a monthly 1.8% in April and was up by 10.9% on the year. It was the highest annual growth rate since 2014. The purchasing managers’ indices for manufacturing and services came in at 65.6 and 62.9 respectively. At 62.9 the composite index was a record high for the 23-year-old measure. The Bank of England’s money and credit statistics showed continued strong demand for mortgages, even as individuals and large businesses paid down more of their debt.



The biggest event for the EU this week was the European Commission’s announcement that it is ready to begin issuing bonds on behalf of all member states collectively. Having been talked about for more than a year, it was not exactly a surprise, but there was relief that the EC had at least managed to steer the plan through considerable opposition by some countries. The programme will raise €750 billion, €80 billion of it this year. The EUR was not directly affected by the news: it is on average unchanged on the week, having lost four fifths of a US cent and fallen two thirds of a cent against sterling.

In common with most countries, the euro area economic data mostly looked impressive on an annual basis, having been crushed a year earlier by lockdowns. The EU measures of personal and corporate confidence all showed improvement. Inflation hit its 2% target for the first time since autumn 2018. The composite purchasing managers’ index at 57.1 was the strongest since early 2018. The only really disappointing figures were for German retail sales. They fell 5.5% in April, leaving the annual increase at 4.4%, less than half the expected rise.



There was little disappointment to be found among the US economic statistics. Continuing jobless claims were more than forecast and construction spending increased by less than expected in April. Otherwise, the ecostats were just about all in line with or ahead of analysts’ predictions. The manufacturing sector PMIs from Markit and ISM were both comfortably into the low sixties. Markit’s services PMI was six points higher on the month at a record 70.4 and the equivalent ISM measure was also an all-time high. ADP reported 978k new jobs in May, a small increase.

The USD vied for the lead with the CAD, eventually losing by a nose. It strengthened by an average of 0.6%, taking a fifth of a cent off sterling and four fifths of a cent off the euro. Compared with a month ago the US dollar is on average unchanged against the major currencies.



The Loonie won the week, with the USD and GBP snapping at its heels. It strengthened by an average of 0.7%. Compared with a month ago it is up by 1.4%, in second place close behind the pound. For the year to date the CAD is the clear leader, three cents ahead of the second-placed pound and an average of 5.6% stronger. It is perhaps not entirely coincidental that oil prices are at their highest levels in three years, with WTI crude only $8 shy of a seven-year high.

For the CAD the most important statistics are today’s employment numbers. Analysts expect them to compare unfavourably with the equivalent US data, with a net loss of jobs for the third month in six. Data earlier in the week put factory gate prices 14.3% higher on the year while raw material costs were up by 56.4%, the biggest annual rise since the series began in 1981. Canada’s gross domestic product expanded by 1.4% in the first quarter, having grown by 9.1% and 2.2% in Q310 and Q420. The three increases more than offset the sharp 11.3% drop in Q220, and Canada’s GDP is 0.3% bigger than in the first quarter of last year. At 57.0 the manufacturing PMI suggested that growth will be even more positive between April and June.



A relative torrent of Australian data and events left the Aussie an average of 0.4% lower on the week. It lost four fifths of a US cent and gave up a cent and two thirds to sterling. The AUD is very slightly firmer on average compared with a month ago.

Although they were well within the growth zone above 50, the PMIs from Markit and AiG were not all higher on the month. AiG’s performance of manufacturing index at 61.8 marked an eighth consecutive month of growth while Markit’s 60.4 was a record high. Markit’s services PMI came in at 58.0, a point off last month’s high and lower than expected. Australian GDP expanded by 1.8% in the first quarter and growth in the year to end-March was 1.1%. The Reserve Bank of Australia announced on Tuesday that it had left monetary policy unchanged. The statement toed the now-familiar central bank line that the “pick-up in inflation and wages growth is expected… to be only gradual and modest”.



It was not the best week ever for the NZ dollar. Having come second to last over the previous seven days, the Kiwi grabbed last place with an average loss of 1.3%. It lost one and a third US cents and gave up three and a half cents to sterling. Over the last month the NZ dollar has lost an average of 0.5% to the major currencies.

The NZD did not receive much help from the domestic economic data. ANZ’s New Zealand Business Outlook, published on Monday, helped set a negative tone, observing that “All activity indicators were generally lower in the late-month sample than in the preliminary read”. Headline business confidence and firms’ own activity were both five points lower than expected, at +2% and +27% respectively. The report noted that “Cost-push inflation pressures continue to intensify across the economy”. Building consents rose by a monthly 4.8% in April, up 15% from the same month last year.


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