Weekly Brief

Central banks in the news


A week of very mixed fortunes left the pound mostly worse off. It lost an average of 0.6%, with specific losses of four fifths of a US cent and two fifths of a euro cent. On Monday, it was the weakest among the major currencies by far. On Thursday, it went some way towards redeeming itself.

Sterling’s problem at the beginning of the week was the chaos in the utilities sector, which is complicating the provision of fresh food and carbonated drinks and driving gas suppliers out of business on an almost daily basis. The pound’s recovery on Thursday came after the Bank of England announced that it would keep monetary policy unchanged, for now. The uplift came from the revelation that two members of the Monetary Policy Committee had voted for an increase to Bank Rate, in anticipation that inflation will exceed 4% this year. It does not mean an imminent rate increase but it does show the MPC beginning to lean in that direction.



With nothing from the European Central Bank and little guidance from the relatively few Eurozone economic statistics, investors were left to make what they could of speculating about Sunday’s German federal election. For well over a decade, Chancellor Angela Merkel has been the de facto leader of Europe. She is now standing down, and it is anyone’s guess who her replacement will be. In a televised debate on Thursday evening, none of the main contenders emerged with an obvious advantage. The same was true of the euro, which lost an average of 0.3% over the week and gave up a third of a US cent.

The Eurozone economic data were mostly uninspiring. Inflation came in at a finalised 3%, exactly as forecast. Consumer confidence in the Eurozone improved by a point and a quarter to -4. The provisional purchasing managers’ indices from Germany and the Eurozone all failed to meet expectations, with the composite index three points lower on the month at 56.1. The report spoke of “slower growth as bottlenecks curb activity and input price gauge hits 21-year high”. Ifo used precisely the same language in its forecast for the German economy in Q4.



Like sterling, the dollar was driven by changing sentiment and the ruminations of its central bank. In the end it was unchanged on average and flat against its northern neighbour. The dollar strengthened by two fifths of a cent against sterling and a third of a cent against the euro. There were no shocks from the US economic statistics. Last Friday’s finalised Michigan index of consumer sentiment was higher on the month but a little lower than the provisional figure, at 71.0. Jobless claims were almost unchanged on the week. The provisional PMIs fell short of forecast but were still comfortably positive.                      

On Wednesday, the Federal Reserve kept monetary policy unchanged, as expected. The accompanying economic projections showed 50% of FOMC members expecting a rate increase next year, arguably a hawkish tilt. At his press conference, Chairman Jerome Powell said the bank could begin to slow down – “taper” – its asset purchase programme in November and wind it down to zero by the middle of next year.



Having lost ground to the USD on Friday, the Canadian dollar pulled its socks up at the beginning of this week and by this Friday morning had made back the entire shortfall. It was also unchanged on average against the majors and strengthened by a cent against sterling. In theory, the biggest factor in the Loonie’s fortunes should have been Monday’s general election. In practice, the vote left Canada exactly where it had been before, with Justin Trudeau’s Liberal party in a minority government.

The Canadian economic data made little difference to the story. New house prices rose 0.7% in August and were 12.2% higher on the year. Retail sales fell in July for the third time in four months. The decline was primarily driven by lower sales at food and beverage stores (-3.4%) and building material, garden equipment and supplies dealers (-7.3%). Sales decreased in 5 of 11 subsectors, representing 38.7% of retail trade.



A fairly wide-ranging but eventually indecisive week left the Aussie just about unchanged against the NZ, US and Canadian dollars. It went up by a cent against sterling, and is two cents stronger than a month ago. Sentiment was the main driver, as investors blew hot and cold about the possible long-term impact of a troubled Chinese property firm. Australian ecostats did not extend beyond the provisional purchasing managers’ indices. The report said the “private sector contraction shows signs of easing in September”. The numbers did not look brilliant, with services at 44.9 and the composite at 46, but at least manufacturing improved by five points to a positive 57.3. 

The minutes of the Reserve Bank of Australia’s monetary policy meeting were a bit of a headache for the Aussie. Investors were not delighted to learn that the bank’s benchmark interest rate is likely to remain unchanged into 2024, especially in the light of recent hawkish language from the Fed and elsewhere.



It was a reasonably good week to be a dollar. The NZD, AUD, CAD and USD were all just about unchanged against one another and on average. The Kiwi strengthened by a cent against the pound and is up by four and three quarter cents – 2.4% – from a month ago. Although the ecostats did not really stack up for the NZ dollar, they contained nothing to suggest that the Reserve Bank of New Zealand would hold back from tightening monetary policy next month when it considers the matter in a fortnight’s time.

Business NZ set the ecostat ball rolling with its performance of services index. Like the PMI that preceded it, the PSI was much weaker on the month, down by 20 points and well into the contraction zone at 35.6. Once again, the national Covid lockdown was the culprit. Westpac’s quarterly index of NZ consumer confidence was four and a half points lower at 102.7, indicating “cautiously optimistic” consumers. The trade figures for August showed exports holding steady while imports increased by 38%.


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