After being knocked around during the post-Easter week there was a reprieve for the pound on Monday, as it moved briefly into the lead. It did not last though, and investors soon returned sterling almost to the back of the field with an average loss of 0.5% for the week. The pound is also the poorest-performing major currency over the last month, down by 0.9% with no wins.
The UK ecostats were at least adequate. Like-for-like retail sales in March were 20.3% above the same month last year. Gross domestic product grew by a provisional 0.4% in February after falling 2.2% in January. Manufacturing and industrial production increased by 1.3% and 1% respectively in February. The trade deficit widened by more than expected to £16.4 billion. Exports to the EU rebounded by 46.6% after plunging in January, leaving them 15% lower over the two months. Sterling’s week was particularly spoiled by news that the Bank of England’s Chief Economist, Andy Haldane, will be leaving later this year. Mr Haldane has been seen as a positive influence on the pound, first because of his hawkishness on monetary policy, and second because he has been one of the main cheerleaders for Britain’s economic recovery.
Together with the North American dollars, the pound and the safe-haven currencies, the euro was relegated to the rear part of the pack. It lost an average of 0.2%, though it was up by a third of a cent against sterling and added three fifths of a US cent. Investors took only a passing interest in the Eurozone economic statistics. Retail sales increased 3% month-on-month in February, though they were still down by almost that much compared with the same month last year. The industrial production data were even less glowing, with monthly and annual declines of 1% and 1.6%. ZEW’s measures of economic sentiment showed a six-point fall to 70.7 in Germany and an eight point fall, to 63.3, for the Eurozone as a whole. It was the first decline for Germany since November.
When EU finance ministers meet today they will doubtless discuss the lack of progress with the EU’s €750 billion Next Generation Recovery Fund, which was agreed nine months ago. The latest story from Brussels is that the money should start to get handed out “in the second half of July”, a year after the programme was agreed.
Investors were hoping for some strong US economic statistics and they got them. Headline inflation jumped from 1.7% to 2.6%, a three-year high, and retail sales increased by a monthly 9.8%, right at the top of analysts’ predictions. In the old normal, numbers like that would have sent the dollar skywards, in anticipation of tighter monetary policy from the Federal Reserve. In the new normal, the dollar actually lost ground. It put in the poorest weekly performance, losing an average of 0.7% and giving up a third of a cent to sterling.
The reason for the dollar’s decline was yet another calming statement from the Federal Reserve Chairman. He insisted that the spike in inflation would be “transitory”, the result of price falls 12 months earlier. Separately, Jerome Powell said in an interview that when the time comes to tighten monetary policy, the first move will not be to raise interest rates, it will be to taper the bond purchase programme. “That would in all likelihood be before - well before - the time we consider raising interest rates.” Investors took it as reassurance that incredibly low US interest rates will continue through 2023.
Had it not been for Canada’s close economic involvement with the United States the Loonie might have had a better week, especially in view of the US Federal Reserve’s apparently unwavering commitment to near-zero interest rates. As it was, the Canadian dollar was held back by the USD and lost an average of 0.4%. It was unchanged against sterling and the Swiss franc.
Last Friday’s Canadian Labour Force Survey for March was surprisingly strong. The economy added 303k jobs, three times the expected number, and unemployment fell from 8.2% to 7.5%, its lowest level since the pandemic made itself felt. At 65.2% the participation rate was almost back to its pre-Covid level. Annual wage growth slowed to 2%, having been as high as 10.5% last May. The decline is a result of lower-paid staff returning to work. ADP’s National Employment Report underlined the recovery in employment. It showed an increase of 634,800 jobs in March. February’s 1.6% fall in manufacturing sales was largely the result of buyers filling their boots in January when sales rose 3.4%.
The Australian and NZ dollars were the week’s top performers with the AUD, in the second place, an average of 0.6% firmer against the major currencies. It strengthened by two cents against sterling and added one US cent. Most of the Aussie’s gains were attributable to the US Federal Reserve’s repeated commitment to low interest rates, which is seen as supportive of the global economy and, consequently, demand for raw materials.
The most striking evidence of Australian economic vitality came in two sentiment surveys. NAB’s Monthly Business Survey reported that “business conditions rose to a record high in March, driven by strong increases in all sub-components – which are now also all at record highs”. Westpac’s Index of Consumer Sentiment went up by seven points to 118.8, which the report described as “an extraordinary result”. The only real “hard” data came with the Labour Force report. Total employment rose 71k in March, unemployment fell from 5.8% to 5.6% and the participation rate edged up to 66.3%, a record high. All of those numbers were better than expected, yet it looked as though investors were unhappy with some of the components: part-time employment went up by 92k while 21k full-time jobs disappeared.
A mostly low profile with the occasional flash of inspiration was helpful to the NZ dollar, which was the leader among the major currencies. It strengthened by an average of 0.9%, adding more than one US cent and rising by two and two thirds of a cent against sterling. As with the Aussie, the Kiwi was helped on its way by the Federal Reserve’s repeated commitment to ultra-low US interest rates. It was also helped by the Reserve Bank of New Zealand, which kept monetary policy unchanged and made no mention of the possibility of negative rates.
REINZ’s monthly house price index showed residential property continuing to streak ahead, with the national house price rising 24.0% on the year. “Gisborne/Hawkes Bay retains top spot in the 12-month ending percentage changes”, with Gisborne prices up by an incredible 56.9%. Business NZ’s Performance of Manufacturing index was equally bullish. A strong boost in new orders and production took the index 9.4 points higher to 63.6, a record high.