Busy going nowhere

Swings AND roundabouts

On Wednesday morning sterling lurched lower, most notably with the swift loss of half a euro cent. It trickled higher over lunch before a half-cent lurch to the upside in mid-afternoon. The overall result was a pound that was just about unchanged, on average, against the other dozen most actively-traded currencies.

The pound's early fall came when Reuters reported that "European Commission officials have rejected the City of London's proposal to strike a post-Brexit free trade deal on financial services." Its later recovery took place after more careful reading of the report revealed that EC officials had "told British financiers in meetings in recent weeks" that this would be the case. So, not really news at all. Anyway, investors are unable to contemplate the possibility that Brexit could result in Britain's financial sector being cut off from Europe.

With no other inputs to shape its fortunes, sterling came away unchanged - save for a dozen or so ticks - against the US dollar, the euro and the Canadian dollar. It gave up a fifth of a cent to the Swissy.

Dollar unmoved by FOMC

As widely assumed, the Federal Open Market Committee left interest rates unchanged. Pedants claimed that the tone of the statement was more hawkish than previously but it really did nothing to change expectations that the Funds rate will go up when Janet Yellen's successor chairs the next meeting in March.

Investors expected nothing from the Fed, they got nothing from the Fed, and they were satisfied. They could have reacted to increased US pending home sales, or the stronger-than-expected Chicago purchasing managers' index and ADP employment change. But no. They are not yet in a mood to be positive about the dollar.

On the eve of Janet Yellens' departure from the Fed it is interesting to see how the dollar performed during her tenure. During her first three years it strengthened by 33% against the pound. During the fourth it fell 13%, leaving it ahead by 15% overall.

PMIs and payrolls

Today's theme is purchasing managers' indices, most of them relating to the manufacturing sector. Tomorrow's is jobs, with employment data from Spain, Norway and the United States. Only three of the figures have any direct bearing on sterling.

One of those is Nationwide's house price index, which came out this morning and was 3.2% higher on the year. The others are today's UK manufacturing PMI and tomorrow's reading from the construction sector. Both are projected to be fractionally higher on the month. 

The monthly change in US nonfarm payrolls is always important. Despite the claims made during Tuesday's state of the union speech, jobs growth during Donald Trump's first year in office was the slowest since 2010, with an average monthly increase of 171k in nonfarm payrolls. Analysts expect the figure for January 2018 to be a little above that level at 180k. As ever, a higher number would in theory be helpful to the dollar.