Up the stairs…

…and down the elevator

A few years ago Richard Hill, Barclays' head of forex, observed that sterling "goes up the stairs and down the elevator". His point was that when investors decide en masse to sell the pound they tend to do so with a sense of purpose and urgency.

It took the pound six and a half years to climb from its 2001 low to the US$2.11 peak it achieved in 2007. Sterling covered the return journey in little more than 12 months. Between January 2009 and July 2014 Cable eventually made it up almost to $1.72 before falling all the way back in less than two years. 

Its treatment last week was symptomatic of the ease with which investors can offload the pound when they choose to do so. Sterling did not lose on every front: it strengthened by nearly 2% against the South African rand. But everywhere else it was lower, its smallest loss being of -1.6% against the Norwegian krone and its biggest the -4.4% by which it fell against the Canadian dollar. 

G20 and Brexit

After their meeting in Shanghai at the weekend G20 finance ministers issued a communiqué which noted that "downside risks and vulnerabilities have risen". One of those risks and vulnerabilities was "the shock of a potential UK exit from the European Union". 

There will be another four months of this before Britain votes on 23 June. There is no assumption that the Leavers will win the day: opinion pollsters give the Stayers a majority of 55-45 and the bookies still make Staying the 4/11 favourite. But it could go either way and investors feel no need to take the risk of an upset. They were not too harsh on the pound on Friday: it actually strengthened by an average of 0.5%. But that was only because they had spent the previous four days hitting it with big sticks and it is already down by -6.2% on the year.

Fortunately for the pound there were other distractions on Friday. German inflation slowed to zero, taking the wind out of the euro's sails, and quarterly growth in the United States was upwardly revised from 0.2% to 0.3%, helping the dollar to a three-quarter-point rise. 

Euroland inflation

The big-ticket ecostat on today's agenda is euro zone inflation. It will probably have slowed from 0.3% to a provisional 0.1%. Whether that will help sterling/euro is a different matter.

With the European Central Bank policy meeting in clear sight it is unlikely that today's €Z inflation number will have any material effect on investors' expectations of lower euro interest rates and increased asset purchases by the ECB. Even so, they will probably feel obliged to do something if the number is markedly adrift from forecast.

UK mortgage approvals and consumer credit should have no impact on the pound. Nor should US pending home sales make much difference to the US dollar. Tonight the Reserve Bank of Australia is expected to keep its benchmark interest rate steady at 2%.