Weekly Brief

Nasty numbers


Sterling flunked its first test in May, losing an average of 1.4% to the other majors in the curtailed six-day week and securing last place. After matching an eight-week high against the US dollar last Thursday it was almost a one-way rout for Cable culminating in a two-and-a-half-cent loss. Not all of the UK economic data were bad but the good ones ones were hard to spot. Nationwide’s house price index was up by an annual 3.7% while mortgage approvals fell sharply. The purchasing managers’ indices varied between poor (32.6 for manufacturing) and dire (8.2 for construction). The services PMI was stronger than forecast but at a lowly 13.4 that was of little consolation.

Announcements that British Airways and Virgin Atlantic intend to close their operations at Gatwick airport reminded investors of just how hard the UK services sector has been – and will be – hit.  There had been a suggestion that the Bank of England might recognise this by increasing its asset purchase programme this Thursday, and indeed two members voted to do that, but in the end the bank kept policy unchanged, giving sterling a little breathing space.



The euro did better than sterling but only by two thirds of a cent to take the penultimate slot. Most of the economic data from the euro zone were at least as bad as the UK numbers. Astonishingly, Britain’s construction sector PMI at 8.2 still eclipsed Spain’s 7.1 for services. The composite readings put Germany in first place with 17.4 and Spain came last at 9.2. All were series lows. Other pockets of misery were to be found in German factory orders, down by a monthly 15.6%, and Euroland retail sales which fell 11.2%. The European Commission’s latest economic forecast was predictably downbeat, projecting a 7.7% economic contraction this year for Euroland and an 8.3% hit for Britain.

There was additional downward pressure on the euro after the German Constitutional Court ruled that the European Central Bank must justify the “proportionality” of its asset purchase programme to Germany’ courts and government. Whilst it should have no difficulty in doing so, the need for a court ruling underlined the ideological distancing between northern and southern Europe.



In second place with an average gain of 0.6% the dollar did reasonably well. Although none of the US economic or political evidence was remotely positive, and some of it downright awful, the overall picture still contrived to look less unattractive than the one in Europe. Among the top-tier major currencies the Greenback lost out to the first-placed Japanese yen because of the yen’s supposedly superior safe-haven qualities. The dollar took a cent and a half off the euro and added two and a half cents against the pound. The two sets of purchasing managers’ index data from Markit and ISM all indicated sharp slowdowns with manufacturing at 36.1 and 41.5, and services at 26.7 and 41.8. Whilst they were far from stunning figures, at least they were well into double-digits.

Overhanging the dollar was the looming monthly employment report, which appears this Friday. It is going to show a record number of job losses that transcends anything seen before. ADP’s employment change figure has a net 20.2 million people losing their jobs in April. Nonfarm payrolls could be down by nearly 22 million. That reality might chasten the investors who blithely assume that everything will be alright once the lockdown ends.



The Loonie did not have a great deal to say for itself. After a technical setback at the end of April it went into May looking relatively settled and the economic data mostly did not get in its way. It was helped by an upward tilt to oil prices which was twice as beneficial to the Norwegian krone. WTI crude went up by a net 25% over the six days. The Canadian dollar took nearly two cents off sterling and lost two thirds of a US cent. Against the other most actively-traded currencies it was down by 0.3%.

There were two sets of Canadian economic data; the manufacturing PMI and the trade figures for March. Neither was wonderful, neither was dreadful.  The manufacturing PMI came in at 33, 13 points lower on the month and eight points short of forecast. It was “by far the steepest downturn in   manufacturing conditions since the survey began” but so was everyone else’s, and the Canadian number was nowhere near the worst. With international merchandise trade the result was a slightly smaller-than-expected deficit. It came at the expense of a 3.5% fall in imports and a 4.7% decline in exports.



Another average performance by the Aussie allowed it to add almost two and a half cents against sterling while it lost half a US cent. It has found support as a result of a recovery in demand from China and progress towards ending the domestic pandemic lockdown. Prime Minister Scott Morrison is aiming for what he describes as a “Covid-19 safe economy in July 2020” and an announcement is expected this Friday on a relaxation of physical separation rules.

Economic data for March were unremarkable, with building permits falling 4% and confirmation that retail sales rose by a strong 8.5% as a result of stockpiling.  The AiG indices for construction and services in April were record lows, as was Markit’s services sector PMI. No surprises there then. The Reserve Bank of Australia announced that the target for the Cash Rate and for three-year government bond yields will remain at 0.25%. The decision did not come as a surprise and did not disturb the Aussie.



The NZ dollar strengthened by one and a half cents against sterling and lost three quarters of a US cent. It was just about unchanged against the euro. Investors continue to see benefit in the way New Zealand has been able to contain the tragic Covid-19 pandemic, especially now that there is talk of Australia and NZ coordinating strategy so as to allow relatively free movement between the two countries.  

Building permits in NZ took a bigger hit in March than in neighbouring Australia. They were down by a monthly 21.3%.  GDT reported milk prices falling 0.8% in the two weeks to 5 May. Jobs data for the first quarter of 2020 showed numbers remaining “steady” in March, though the figures were compiled before the impact of the Covid-19 lockdown began to be felt. For the record, unemployment was a touch higher on the quarter at 4.2%.

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