Sterling’s trajectory was reminiscent of a cartoon aeroplane as it soared and plunged: leader of the major currencies on Tuesday, back of the pack on Wednesday and at the front again on Thursday. The net result was positive for the pound, leaving it an average of 0.9% higher with gains of one euro cent and one and three quarter US cents. Unfortunately, it is impossible to attach concrete reasons to the pounds ebb and flow. The only significant economic data were for consumer prices and confidence. Inflation was uncontroversial, with the headline rate at 1% and the “core” measure at 1.8%; consumer confidence was unchanged on the month.
The seventh round of post-Brexit negotiations appears to have been as unproductive as investors had feared. Deep disagreements still remain, especially with regard to fishing and the EU’s requirement for a level playing field to avoid unfair competition. That said, few believe that all is lost: further, as yet unscheduled, talks are expected next month, with both sides working towards avoiding a no-deal Brexit.
After leading the major currencies last Friday, the euro retreated from the limelight to spend most of this week in the shadows. It did slightly better than average among the major currencies, adding two thirds of a US cent but giving up a cent to the class-leading pound. It being August, there were no notable political developments because legislators were self-quarantining in their holiday homes. The minutes of July’s European Central Bank meeting were not the most optimistic ever. The word “uncertainty” appeared 20 times and “negative” seven. “Optimistic” appeared just once and even then in a negative context, preceded by the word “overly”.
Last Friday’s confirmation that the Euroland economy shrank by 12.1% in the second quarter made little difference to the EUR because it was exactly in line with forecast. Nor did the 2.9% decline in employment have any real surprise value. It was a similar situation with Wednesday’s consumer price index data: headline inflation at 1.2% was exactly as expected.
The USD was unable to perfectly emulate sterling’s yoyo performance but it had a good try, taking last place on Monday and first on Wednesday. Analysts are divided as to whether its brief renaissance represents an imminent turning point or a pause on the way down. Either way, it was another unproductive week for the USD, with an average loss of 0.3% to the other majors. It gave up one and three quarter cents to the GBP and two thirds of a cent to the EUR. Compared with a month ago the dollar is 4.6% lower against the pound.
It was sentiment rather than hard US economic data that took the dollar lower. Among the contributory niggles are the President’s efforts to undermine the US Postal Service and the ongoing failure of Congress and the administration to agree a new package of fiscal economic stimulus.
The Loonie had just as quiet a week as the euro, with exactly the same outcome. The two were unchanged against one another, an average of 0.2% firmer against the other major currencies. For the CAD it meant adding a third of a US cent and losing a cent and two thirds to sterling. Unlike Europe, politics did make the headlines in Canada, though it is not clear that there was any effect on the currency. Finance Minister Bill Morneau resigned on Monday, to be replaced by Chrystia Freeland and Prime Minister Justin Trudeau prorogued parliament until 23 September. The choreography certainly did not look great but the Loonie survived.
Canadian economic data were few and mostly helpful. Manufacturing sales rose by a record 20.7% in June but still remain 13.2% below their pre-pandemic level in February. Wholesale sales jumped 18.5%, coming close to pre-pandemic levels. Headline inflation slowed from 0.7% to 0.1%, although prices did still rise in five of the eight major components on a year-on-year basis. Price growth slowed most in the transportation component, mostly due to air travel.
The Aussie had a better week than its south eastern neighbour, strengthening by 0.7% against the Kiwi. It was in the leading half of the pack, rising by an average of 0.4% and adding half a US cent. The AUD lost a cent and a quarter to the pound and is down by 2% from a month ago. The minutes of the Reserve Bank of Australia board meeting, which were supposed to be the highlight of the week for the Aussie, turned out to be of little help. There was no hint of further easing but potential buyers were not motivated by the idea that “this accommodative approach would be maintained for as long as necessary”.
Nor were the Australian statisticians particularly forthcoming. Following the inconclusive RBA minutes there was nothing to entertain investors until this Friday morning, when the provisional purchasing managers’ index readings appeared, followed by retail sales for July. Retail sales rose 3.3% and were up by 12.2% from the same month last year. The provisional PMIs were less convincing. Manufacturing at 53.9 was a fraction lower on the month while services at 48.1 put in the weakest showing since May. The composite index came in at 48.8, also its lowest level since May, reflecting the re-imposition of Covid-19 lockdown measures.
The Kiwi has been unable to move on from last week’s extremely cautious policy statement by the Reserve Bank of New Zealand. Investors remain spooked by the possibility of negative rates and many are already building them into their projections for 2021. A snapshot earlier this week showed that the market is pricing in a 0.4% rate cut by July next year. ANZ predicts a half-percentage-point cut in the Official Cash Rate, to -0.25%, in April. And that is why the Kiwi struggled through the week. It was not the weakest among the majors though: the northern Scandinavian crowns had a worse time and the NZD beat the US dollar by a nose.
NZ economic data had minimal impact. Business NZ’s performance of services index was a touch lower on the month but there or thereabouts at 53.2. GDT’s dairy price index was 1.75 lower on the fortnight. The produce price index data showed manufacturers’ costs falling more quickly than factory gate prices in the second quarter. Credit card spending fell 5.8% in the year to July.