Weekly Brief

Waiting for Jay

6 minute read


After sharing the loss on Tuesday and Thursday, and sharing the win on Wednesday, sterling (GBP) came away with an average decline of 0.4%. The pound missed out on the gains enjoyed by the “risky”, often commodity or energy-related currencies, but also avoided the losses borne by the safe-havens; the Swiss franc (CHF), Japanese yen (JPY) and US dollar (USD). In a week typified by lack of conviction and aimless drifting, none of sterling’s moves were remotely exciting.

Neither politics nor the Bank of England came into the equation. Although the UK economic data were not particularly good, they made no immediate difference to the pound. Retail sales declined by 2.5% in July after a paltry 0.2% increase in June. The provisional purchasing managers’ index surveys produced a composite reading of 55.3, a six-month low: “supply chain constraints hit output growth in both the manufacturing and services sectors”. The CBI found services sector business optimism 54 points lower on the month at -17%: the gloom was largely the result of recruitment difficulties.



Europe was not much more forthcoming than Britain in the provision of economic statistics. On a pan-Eurozone basis there were the provisional PMIs, consumer confidence and money supply. The composite purchasing managers’ index fell less than one point to a two-month low of 59.5, which was “still close to a 15-year high… despite widespread supply chain delays”. In contrast with the recruiting difficulties in Britain, “hiring remained the strongest in 21 years”. The money supply data revealed little, as did the account of the European Central Bank’s policy meeting in July. 

Germany filled in a couple of gaps with a small upward revision to second quarter growth, and a softening of both business and consumer confidence. As was the case just about everywhere else, the numbers had minimal impact on the currency. The euro (EUR) lost an average of 0.2% over the week, strengthening by a fifth of a cent against sterling and adding three quarters of a US cent.



Only the Japanese yen (JPY) had a less successful week than the US dollar (USD), which shared penultimate place with that other safe-haven, the Swiss franc (CHF). The pair declined by an average of 0.9% and the dollar lost two thirds of a cent to sterling. Although the situation in Afghanistan was constantly in the headlines, America's part in it seemed to have no direct impact on the dollar.

The US ecostats did not have much impact either. At 55.4 the composite Provisional PMI was down by four and a half points on the month, at an eight-month low of 55.4. The Richmond Fed’s manufacturing index fell 18 points to a still-positive 9. Durable goods orders fell 0.1% in July. Looking on the bright side, existing home sales increased by a monthly 2%, with the median price 17.8% higher on the year, and new home sales were up by a monthly 1%.

Over the week there was much conjecture and speculation as to what the Federal Reserve chairman would say about monetary policy in his speech to the Jackson Hole economic symposium. It produced no consensus.



The conjecture and speculation about US monetary policy had far more effect on the Loonie (CAD) than any Canadian domestic factors. On three of the five days it led the major currency field, thanks to a general perception that there could be more than a year until US interest rates start to move higher. Over the seven days the CAD strengthened by an average of 0.5%, taking a cent and a half off sterling and adding one US cent (1.4%).

Although the few Canadian ecostats – all of them last Friday - were constructive, the Loonie did not show much reaction to them. Retail sales increased by a monthly 4.2% in June, helped by clothing sales and by the easing of Covid-related restrictions in many regions across the country. Statistics Canada provided “an advance estimate of retail sales… that suggests sales decreased 1.7% in July”. Canada’s new home pricing index rose 0.4% in July and was 11.9% higher on the year.



The Australian dollar (AUD) delivered a result identical to that of the Loonie, strengthening by an average of 0.5%. It went up by a cent and three quarters against the pound and added one US cent (1.5%). It has more work to do if it is to win back the ground it lost over the last few months. Compared with a month ago the Aussie is an average of 1.3% lower, at the back of the field.

Like the CAD, the AUD’s success over the week was mostly down to investors’ expectations for US monetary policy. The Australian ecostats were of little or no help. According to Markit, private sector output contracted at a faster rate in August, with the composite PMI down by another couple of points at a 15-month low of 43.5. Manufacturing, down by five points, just managed to cling on in the growth zone at 51.7. Retail sales fell 2.7% in July and were down by 3.1% from the same month last year.



The performance of the NZ dollar (NZD) was similar to that of the CAD and AUD, for similar reasons. It did a little better than its cousins, strengthening by an average of 0.7%, The Kiwi went up by two and a quarter cents against the pound and added just over one US cent (1.6%).

Domestic ecostats were not a great deal of help to the argument for the NZ dollar but at least they didn’t get in its way. Credit card spending in July was 6.9% higher on the year, a slightly bigger increase than in pre-pandemic times but not remarkable. Retail sales in the April-June quarter were 3.3% more than in Q1 and stronger than the forecast 2% increase. ANZ’s index of consumer confidence eased three points to 110 in August. Inflation expectations lifted again to 5.1% and house price inflation expectations were little changed at 6.3%.


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