After a difficult day last Friday, the pound pulled up its socks and went on to add an average of 0.8% against the other major currencies, losing out only by 0.2% to the Japanese yen. Compared with its position on Christmas Eve, sterling is an average of 1.6% higher and the top performer of the month. It was not entirely quiet on the political front: in Davos there was a tariff spat between the British and US finance ministers. But investors were more concerned with the economic data which, last Friday's poor retail sales aside, were better than forecast.
Rightmove's index of asking prices is 2.3% higher on the month, the largest increase in the index's 18-year history. Employment touched a record high, unemployment remained low at 3.8% and earnings growth held up at 3.4% for basic wages. The CBI's Industrial Trends Survey showed the biggest swing towards optimism since 1958. All in all, where last Friday investors had put a 70% probability on a Bank of England rate cut next week, by Thursday that was down to 50%.
The euro was the weakest among big four currencies (the USD, EUR, JPY and GBP, which together account for 75% of FX turnover), giving up seven eighths of a US cent and losing a cent and a third to sterling. It was lack of enthusiasm rather than active dislike that sent the euro to the back of the field. The economic data were not bad but most of them were not very interesting. Inflation was back up to 1.3%, as expected. Construction output increased by 0.7% in November. ZEW's surveys of economic sentiment were briefly helpful to the euro but not enough to inspire buyers.
The biggest hit to the euro came on Thursday with the European Central Bank president's press conference. As expected, there was no change to monetary policy and Christine Lagarde launched her strategic review of ECB policy, the first in 16 years. No surprises there, then, but investors thought they detected a dovish tone in Ms Lagarde's pronouncements so they marked down the euro.
The dollar took third place for the week behind Japan's yen and Britain's pound. It lost half a cent to sterling and picked up seven eighths of a cent against the euro. Compared with the other majors it is on average fractionally ahead over the last month. There were rather more misses than hits among the US economic data but none of the misses was a key statistic. Arguably the most important, the Michigan index of consumer sentiment, came in at a provisional 99.1, only marginally down from last month's 99.3. Industrial production was also lower on the month but was skewed by "a large decrease in demand for heating, as unseasonably warm weather in December followed unseasonably cold weather in November".
At the end of last week it emerged that the US President intends to have another try at getting his adviser Judy Shelton onto the Federal Reserve board. She is a little controversial, in that she advocates a return to the gold standard that had to be abandoned as unworkable in 1976.
For most of the week the Loonie cruised on autopilot. The exception was Wednesday, when it had a bit of a nervous breakdown. Overall, the Canadian dollar was marginally lower on average against the other majors. It lost half a US cent and fell a cent and two thirds against sterling.
Canadian affairs rather dominated the afternoon session on Wednesday. Headline inflation was unchanged at 2.2% in December and the Bank of Canada left its benchmark interest rate unchanged at 1.75% for a 16th month. Neither was a surprise, but investors took against Governor Stephen Poloz's statement. At his previous outing a fortnight ago he had sounded neutral on monetary policy. Yesterday he showed a distinct shift towards dovishness, noting weakness in exports, investment, confidence and employment. Despite positive developments on the trade front south of the border, there is still "a high degree of uncertainty" about the economy.
Through most of the week the Aussie was on the defensive, sliding lower against the US dollar and the pound until Wednesday night, when a sharp recovery clawed back some of the lost ground. Later the same day, a relapse negated most of that recovery. On the week the Australian dollar is more than two cents lower against sterling and it has lost half a US cent. On average it is 0.3% lower against the other majors.
The Aussie was something of a one-trick pony: Thursday's employment data had more impact than the rest of the ecostats put together. Almost 29k new jobs were created in December and unemployment touched a nine-month low of 5.1%. Even though all the new jobs were part-time, investors did not mind: the news might be enough to prevent the Reserve Bank of Australia cutting rates in two weeks' time. The only other data of note were the provisional purchasing managers' index readings. At 49.1 for manufacturing and 48.9 for services, they were well short of impressive but investors seemed not to mind.
Like its Australian and Canadian cousins, the NZ dollar only really had one set of economic data to shape its fate. In the Kiwi's case it was Friday's quarterly inflation data, which were instrumental in turning a losing week into an average one. On average the NZ dollar was unchanged against the other major currencies. It lost a quarter of a US cent and fell a cent and two thirds against sterling.
Because New Zealand publishes its most important economic data only every quarter, three months' expectation and anticipation is built into every release. In this case, analysts had calculated that prices rose 0.4% in the fourth quarter of 2019, taking annual inflation up from 1.5% to 1.8%. As it happened, both of those forecasts was on the shy side, and headline inflation came in at 1.9%. The only other important statistic was Business NZ's performance of services index. At 51.9 it was a point and a half lower on the month but still positive.