Sterling was unchanged on the week against the Swiss franc and lost nearly a whole US cent. Elsewhere, however, it made headway, strengthening by an average of 0.4% against the other major currencies. There was nothing whatsoever among the UK economic data to justify its progress. The National Institute of Economic and Social Research said there is "a one-in-four chance that the economy is already in a technical recession". The CBI's Industrial Trends Survey for July noted that "Optimism fell at the fastest pace since July 2016 – just after the referendum – and investment spending plans weakened again". Its Distributive Trades Survey claimed that the decline in retail sales is "the longest period since 2011" (though the ONS will disagree; it reported strong growth in June).
The only positive note for investors was the appointment of a new Prime Minister. Whatever his supposed shortcomings, they were evidently impressed by his decisiveness in firing most of Theresa May's ministers and replacing them with hard Brexiteers from the back benches.
Except for Germany's services sector, where the situation deteriorated by less than expected, the provisional purchasing managers' index readings from around the euro zone all looked rather unpleasant. The ugliest of all covered German manufacturers, whose 43.1 was the weakest in seven years. For Europe as a whole, the composite PMI at 51.5 was "only" a three-month low. Back in Germany, IFO's three measures of corporate confidence were understandably gloomy. Business climate was two points off at 95.7, current assessment fell a point and a half to 99.4 and expectations dropped nearly two points to 92.2. IFO noted that "the mood in German C-suites is growing uneasy" and "in manufacturing, the business climate indicator is in freefall".
As expected, the European Central Bank kept monetary policy unchanged for the time being and hinted at easing in September. The hint had no detrimental effect on the euro, probably because although Mario Draghi said "This outlook is getting worse and worse", it is clearly not bad enough to require an immediate rate cut. The euro lost a third of a cent on the week to sterling and more than one US cent.
In the wake of the confusion about the Federal Reserve's policy intentions (25 or 50 basis points to be lopped off the Funds rate next week), it took nearly 24 hours for the dollar to recover its equilibrium. Comments by James Bullard and Eric Rosengren on Friday helped to persuade investors that there will not be a half-point cut: The St. Louis Fed president wants a quarter-point reduction and his opposite number in Boston would rather leave the Funds rate where it is. Investors are happier with a quarter-point cut than they would have been with a half-point reduction, and they showed their appreciation by taking the dollar to the front of the field. It is nearly a cent higher on the week against sterling.
The US data were a mixed bunch. Existing home sales fell 1.7% in June while new home sales rebounded strongly. Nondefense capital goods orders excl. aircraft were up by a monthly 1.9% yet the manufacturing PMI was on the cusp of growth and contraction at 50.0, the lowest reading since 2009.
The Loonie was in the middle of the bunch, flat against the euro, giving up two fifths of a cent to sterling and losing three quarters of a US cent. It showed an unusual reluctance to react to oil prices, on some occasions not even moving in the same direction. WTI crude is unchanged on the week yet the Canadian dollar is appreciably lower against the Greenback.
Weaker-than-expected Canadian economic data were the cause of its problems. Investors had been expecting to see a 0.4% monthly increase in retail sales for May, excl. autos. Instead, they saw a 0.3% decline. Wholesale figures for the same month, released on Monday, were at least as disappointing. Analysts had forecast a 0.5% increase so investors took a dim view of the unexpected and sharp 1.8% monthly decline in May. The impact of their disapproval was increased by the lack of data from elsewhere: there was no distraction from the weak Canadian number so investors made the most of it.
It was a busy week for the Aussie, and not in a nice way. On Tuesday and Wednesday, it took last place among the major currencies and it fell by an average of 0.6% on the week. The Australian dollar lost one and a quarter US cents and fell a cent and three quarters against sterling. US interest rate expectations played a part in its decline: if the Federal Reserve is only going to carve a quarter of a point off the Funds rate, the US dollar will look relatively more attractive against the Aussie.
It will also look more attractive if the Reserve Bank of Australia delivers more rate cuts of its own, and that was the thinking this week. Westpac's forecast, released on Wednesday, anticipated two more rate cuts from the Reserve Bank of Australia and brought forward to October the expected date for the next cut. RBA governor Philip Lowe did not exactly endorse that prediction in his speech on Wednesday but confirmed that "it is reasonable to expect an extended period of low interest rates".
The NZ dollar was in much the same boat as the Aussie as far as interest rates were concerned. When the US Federal Reserve clarified its focus on a quarter-point, not a half-point cut, it reasserted the Greenback's advantage against the Kiwi. Although the NZ dollar's descent was a little choppier than that of the Aussie, it progressed at a similar pace, with a similar result. The Kiwi lost one and a quarter US cents and fell two cents against the pound. It is just about unchanged on the week against the Australian dollar.
Other than the trade figures for June, which were better than expected, there were no economic data to trouble the Kiwi. It did have a problem, however, with a story that the Reserve Bank of New Zealand is refreshing its "unconventional monetary policy strategy". Although there was no suggestion that the RBNZ has any action in mind for the immediate future, the mere fact that it is considering (presumably) quantitative easing was enough to send the NZ dollar a few steps to the rear.