The Force Weakens

Treading carefully
There is a farm shop in Everton, near Doncaster. It is called The Everton Farm Shop. Pathetically, the Everton Football Shop has started a legal battle over the name, fearing that its differently intellectual fans will buy Lincolnshire sausages instead of £48 shirts. There was similar confusion about sterling yesterday.

Well, maybe it was not confusion but considerably less money went into the pound sterling than into Manchester City's Raheem Sterling. In fact there must have been a net outflow, given that sterling was the weakest performer. It fell by an average of -0.7%, losing one yen, one euro cent and a quarter of a US cent.

Bank of England Deputy Governor Minouche Shafik had a lot to do with the pound's discomfort when she delivered a speech at the Institute of Directors entitled "Treading carefully". Her general drift was that interest rates must remain low until wage growth accelerates and that eventual increases should be "gradual and limited". It wasn't ground-breaking stuff but it coincided with a fall in UK house asking prices (Rightmove) and renewed worries about Britain's future in the EU.

Risk on
Another swing of the risk/safety pendulum saw the commodity-oriented currencies reversing some of Friday's losses.  The NZ dollar was the top performer, strengthening by 1.6% to go into the lead for the day, the week and the month. South Africa's rand continued its recovery following the reappointment of a proper finance minister.

The Kiwi owed its prominence to New Zealand Finance Minister Bill English. Introducing the Treasury's latest economic and fiscal forecasts he was relatively upbeat about the outlook and said he would help things along with a billion dollars of extra spending next year.

Mario Draghi, the president of the European Central Bank, did his bit for the euro when he said in a speech that he expects inflation to reach its 2% target "without undue delay" and that, if it doesn't, "there are no restrictions to our choice of which tools we use or how". The euro is two thirds of a cent higher on the day against the US dollar.

As if to make up for Monday's dearth of ecostats, today's agenda is brimming with them. The two sets of data that will matter most are the inflation numbers from the United Kingdom and the United States. There will be an announcement about Swedish interest rates this morning.

Although analysts believe UK consumer prices fell by -0.1% in November they are still expecting the headline inflation rate to pick up from -0.1% to 0.1%, taking the "core" rate - excluding fuel and food prices - up to 1.2%. The equivalent figures for the States are pencilled in at 0.5% and 2.0%. As usual, any surprises could move the pound or the dollar.

Other data today cover German and euro zone investor sentiment, Euroland employment, Canadian manufacturing shipments and US house-building activity. Bank of Canada Governor Stephen Poloz will be speaking at teatime.