An extraordinary week for sterling saw the pound moving gently upwards on Monday through Wednesday and leaping suddenly higher on Thursday. Most of that was easily explicable, but Thursday’s jump was driven, amazingly, by the departure of the Chancellor of the Exchequer, Sajid Javid. Evidently, the first thought of investors was that his replacement would be more tolerant of the increased public spending which they believe is necessary to stimulate the economy. Javid’s departure was worth nearly 1% to sterling on the day. That accounted for most of the week’s gains and for the pound’s position at the front of the field.
Most of the UK economic data came in a rush on Tuesday. They were not brilliant but could have been worse. Disappointing output figures were less dire than usual and there was a sense of relief when the gross domestic product data confirmed that the economy did not shrink in the fourth quarter, unlike France and Italy.
The euro was way off the pace, falling an average of 1.1% against the other major currencies and losing twice that much - two and a half cents - to the pound. For four days on the trot it was the weakest performer. Against the US dollar, the euro touched its lowest level since June 2017. One argument has it that the euro is losing out to the US dollar as a safe-haven at a time of coronavirus angst, but that cannot explain why it is 1% lower on the week against the South African rand.
More reasonably – and consistently – it is economic weakness that lies at the root of the euro’s downward drift. Investor confidence suffered a relapse in February and industrial production continued its decline in December. The European Commission’s latest economic forecast is not unreservedly optimistic about the future, saying “outlook still clouded by risks despite some rays of light”.
The US dollar shared fourth place for the week with the Australian dollar, behind the pound, the Canadian dollar and the Japanese yen. It took a cent and a half off the euro and lost a cent to sterling. Apart from the odd Tweet by president Trump, the political scene was fairly calm. When the Federal Reserve chairman made his biannual pilgrimage to Congress, he made no earth-shaking revelations. He declared it was “too early to say” what economic impact coronavirus might have on the States.
America’s economy continues to deliver the sort of solid data that keep investors happy, even if some of them occasionally fall short. Last Friday’s jobs numbers revealed a monthly increase of 225k in nonfarm payrolls that easily beat the forecast 160k rise. Investors did not mind that unemployment ticked up to 3.6%. Inflation at 2.5% was a touch higher than expected.
The Loonie took second place for the week behind sterling, conceding a cent to the pound. It strengthened by a fifth of a US cent. Canada’s economic data were concentrated on Friday and Monday, with none to be seen during the rest of the week. Friday’s jobs numbers exceeded expectations in all the important ways. Unemployment ticked down to 5.5% and there were 35k more people in work. The participation rate was minutely lower at 65.4%. On the same day, the Ivey Purchasing Managers’ Index came in four points higher than forecast at 57.3. Housing starts and building permits were both stronger than expected.
Bank of Canada Governor Stephen Poloz made a joint appearance with his opposite number at the Reserve Bank of Australia. Beyond remarking on the resilience of the Canadian economy, he said nothing to affect the Loonie.
In fourth place alongside the US dollar, the Aussie had a moderately successful week. Having lost ground last Friday it made it back by the end of Wednesday. Against sterling, the Australian dollar lost a cent and a half. A disparate bunch of economic statistics were not of huge significance to the Aussie. Mortgage lending in December was a little stronger than forecast, with approvals rising 4.4%. NAB's monthly business survey in January found little change from the end of last year with “little to no growth in the private sector”. Westpac’s index of consumer confidence improved by two points to 95.5 but remained “weak overall”.
Reserve Bank of Australia Governor Philip Lowe was cautious about the economy when he appeared at a forum with the Bank of Canada’s Stephen Poloz. He stated the economic impact of climate change will be “profound” while the coronavirus is having a “major effect” on education, tourism and business deals, which will hit the economy in the short term.
After one day leading the major currencies and two days at the back of the bunch, the Kiwi was eventually on average unchanged. It lost two and a quarter cents to sterling. More than anything it was the Reserve Bank of New Zealand that shaped its fortunes, in particular with the monetary policy statement on Wednesday. It was not that the RBNZ did nothing, it was how it didn’t do it. Leaving its Official Cash Rate steady at 1% the RBNZ said, in every way it could think of, that the OCR will remain where it is for the remainder of the year.
Lest there be any doubt, RBNZ governor Adrian Orr reaffirmed the following day that the bank has a “genuine neutral bias” on monetary policy. Investors had not been prepared for such impartiality and they took the Kiwi higher. There was no challenge from the NZ economic statistics, the highlight of which was a 4.2% annual rise in electronic card retail sales.