It was a much more composed week for the pound. The UK economic data were all either constructive or neutral and there were no significant verbal interventions by the government or the Bank of England. Overall sterling was the top performer among the major currencies, with an average gain of 1.2% and no losses. Compared with a month ago the pound is an average of 0.9% firmer, beaten only by the Canadian dollar.
The strongest UK data came from residential property. The Halifax house price index went up by 1.4% in April, putting the average price at £258k, a record high. Prices are 8.2% higher on the year. The RICS UK house price balance jumped to +75%, its highest level in more than 40 years as demand far outstripped supply. A stack of UK ecostats on Wednesday morning came in mostly better than expected. The trade deficit for March was smaller than anticipated. Industrial and manufacturing production were well ahead of forecast. The decline in first quarter gross domestic production was revised from -1.6% to -1.5%.
On the statistical front there was almost nothing from the Eurozone to influence buyers or sellers of the euro. While the data from Britain and the USA arrived by the bucket-load, the numbers from Europe were more of a trickle. Pan-Eurozone data were almost non-existent. The 10.9% annual increase in industrial production lost impact in the same way as almost all comparisons between the first lockdown and the recent economic reopening. The same was true of the European Commission’s updated economic forecast: it came as no surprise to see “a significant upgrade of the growth outlook”, for all the obvious reasons.
Perhaps the biggest driver of the euro was the changing fortunes of the US dollar, which ended last week badly and recovered somewhat this Wednesday. The euro came out of that contest best, but only to the tune of a fifth of a US cent. Overall it strengthened by an average of 0.4%, losing almost a cent to the class-leader, sterling.
Without doubt it was the US dollar that attracted the most attention from investors. It did not go far, eventually strengthening by an average of 0.2% against the majors, but it had a fairly busy – if confused – journey to get there. The dollar lost a cent and a third to sterling and added half a cent against the Australian and NZ dollars.
The dollar’s narrative focused squarely on inflation; what it might look like in Wednesday’s consumer price index data and where it might be going in the future. There was considerable concern early in the week that a high print for inflation could divert the Federal Reserve from its commitment to perennially-low interest rates. There was even greater concern when those numbers came out, putting the headline rate of inflation at 4.2% and showing core prices rising 0.8% between March and April. The first can be excused by the base effect of seriously depressed prices in April last year (oil traded below zero). The second means that prices have been going up sharply this year. The Fed stuck to its guns; the inflation spike is transitory and does not warrant tighter monetary policy. But not all investors are convinced.
After a couple of weeks ploughing its own furrow the Canadian dollar reverted to type, remaining mostly within a one-cent range against the US dollar and emerging unchanged. It lost a cent and three quarters to sterling and strengthened by an average of 0.2% against the majors. The Loonie was the top performer over the last month, taking more than two cents of sterling and adding an average of 1.9%.
In recent weeks the Loonie’s claim to fame was that the Bank of Canada had begun to taper its quantitative easing programme. During the last week investors began to wonder seriously whether rising inflation would lead the US Federal Reserve to follow the same course. Were it to do so, the Canadian dollar would lose its USP. High inflation readings from the States on Wednesday added weight to that suspicion. As for the Canadian economy itself, the only serious data were last Friday’s jobs numbers. They were unimpressive, with unemployment rising to 8.1%, but they were overshadowed by the US employment data, which appeared at the same time and were even more disappointing.
The Australian dollar put in a below-average performance, as did its neighbour the NZ dollar, principally because of concern that sharply-rising inflation could persuade the US Federal Reserve to tighten monetary policy sooner than promised. Were it to do so, it would restrict the flow of almost-free money that has facilitated growing demand for Australia’s commodity exports. In the meantime, that demand remains strong and the price of iron ore, Australia’s biggest export, touched a record high during the week. The Aussie lost an average of 0.4%, giving up three cents to sterling.
The few domestic economic data were mostly positive. A 1.3% monthly rise in retail sales was almost as much as expected. NAB’s Monthly Business Survey “saw another very strong result” with business conditions and business confidence at record highs. The most outrageous statistic, as has been the case more than once in recent months, was new home sales. The end of the government’s HomeBuilder subsidy in March tipped sales off a cliff in April, as a 54.4% decline followed March’s 90.3% jump.
The Kiwi’s performance was much like that of the AUD, for the same reasons. It lost an average of 0.5% and fell three and a quarter cents against the pound. Over the last month the NZD did better on average than its peers, with a gain of 0.2%.
Domestic economic data tended to favour the currency, even though there were some notable distortions. The spectacular 108.7% year-on-year jump in electronic card retail sales did not, for example, cover the tourism sector because foreign visitors are still not permitted. It did, however, include a 515.2% jump in furniture, electrical and hardware retailing and a 640% increase in recreational goods. The REINZ reported monthly and annual rises of 0.6% and 26.8% for house prices. Business NZ’s performance of manufacturing index was five points lower on the month in April at 58.4. However, it was the second highest result since the end of lockdown in July 2020.