In the end it was a positive week for sterling, with an average gain of 0.3% that took it into joint first place with the Japanese yen. It was not an easy ride though: on three of the five days, the pound found itself at the back of the field, mostly through no obvious fault of its own. To some extent the pound’s gyrations were down to technical (chart) issues. Having rebounded from trend support above €1.1450 at the end of February sterling did so again on Monday morning. Sentiment also played a part, as investors blew hot and cold about a resurgence of the pandemic.
The UK economic data were mostly benign. Rightmove reported that asking prices for residential property reached a record high in a “buying frenzy”. Official figures confirmed that house prices were up by 8.6% on the year. Jobs numbers were in line with forecast, with unemployment falling to 4.9%. Inflation at 0.7% was almost exactly as forecast. Retail sales in March were much stronger than expected, up by 5.4% on the month and 7.2% on the year.
The euro began the week well but quickly ran out of steam. Although it staged a recovery against sterling on Thursday it struggled everywhere else. It was eventually just about unchanged against the major currencies, having added two thirds of a US cent and given up a fifth of a cent to sterling. The main event of the euro’s week was the European Central Bank President’s press conference on Thursday, which followed the announcement that monetary policy would remain unchanged. Christine Lagarde was uncomplimentary about the EU economy, saying it was still “on crutches” and dismissing any idea of tighter policy.
The few economic data tended to bear out that position. Inflation rose from 0.9% to 1.3% in March, exactly as forecast. The current account surplus narrowed by 25.7% in February. Construction output was down by an annual 5.8%. The ECB’s own survey found that banks had become more selective in their criteria for lending to businesses. But at least consumer confidence continued to recover, rising by more than two points to a 13-month high of -8.1.
The US economy ended last week on an upbeat note, with the S&P 500 share price index closing at a record high. That optimism did not rub off onto the US dollar though. Whilst it did have a good day on Tuesday, briefly leading the field, it shared last place for the (Friday to Friday) week with the Australian dollar, losing an average of 0.4%. The US dollar gave up a cent to sterling. It is also the only major currency to have lost ground to sterling over the last month, down by an average of 1%.
Christopher Waller has remained almost entirely off the radar since he was appointed Governor of the Federal Reserve at the end of last year. He popped up last Friday in an interview with CNBC, saying “I think the economy is ready to rip”. However, he then went on to spoil the effect by making clear that he does not advocate tighter monetary policy as yet: “We’ve still got a long way to go. There’s no reason to be pulling the plug on our support till we’re really through this.”
One story dominated the week for the Canadian dollar, and allowed it to break free of the US dollar’s stranglehold. On Wednesday, the Bank of Canada surprised everyone with an announcement that it would scale back and taper its programme of quantitative easing. Instead of buying $4 billion of bonds every week, the BoC will buy $3 billion. A major factor in that decision was the bank’s upgraded forecast for the Canadian economy. Although the central bank made clear that it will keep its benchmark rate unchanged “until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved”, investors rewarded the CAD for the first step in that direction. It took joint third place for the week alongside the Swiss franc.
With the BoC’s tapering in mind, the Canadian ecostats rather paled into insignificance. Housing starts rose 8.3% in March. Inflation doubled (but not sustainably) to 2.2%. New house prices were up by an annual 7.9%.
From being one of the previous week’s front runners, the Aussie fell to last place alongside the US dollar. It lost an average of 0.4%, giving up a cent and a third to sterling. The AUD did nothing especially badly; a couple of the Australian ecostats were quite impressive. However, there were more than a couple of mood swings among investors, especially with respect to a resurgence of the pandemic, and the AUD suffered collateral damage.
The first statistic of the week looked like a misprint, as new home sales increased by a monthly 90.3% in March. In fact the number was real enough, the result of buyers hurrying to take advantage of the government’s Home Builder subsidy before the plug was pulled. Retail sales were not so dynamic but still managed to rise 1.4% in March after a difficult February. Australia’s provisional purchasing managers’ indices were both higher on the month, with manufacturing at 59.6 and services at 58.6.
On average the Kiwi was just about unchanged on the week, losing seven eighths of a cent to sterling. Its carefully-honed skill at keeping a low profile allowed it to avoid much of the to-and-fro in risk sentiment.
Although it did not really affect the value of the NZD the highest-profile ecostat was the quarterly consumer price index. It showed prices rising 0.8% in the first quarter of 2021, putting the headline rate of inflation at 1.5%. The lack of reaction was the result of the numbers being almost precisely aligned with analysts’ predictions and the fact that inflation has not really budged in the last 12 months. The week’s other numbers showed credit card spending going up by 2.2% in the year to March and the Business NZ performance of services index climbing back into the growth zone for the first time in five months.