Pound pounded

Agreements all round

There were hugs and coffee to celebrate yesterday's agreement between Saudi Arabia and Russia to limit their oil output. In Brussels it was handshakes and Kristal when David Cameron secured the support of an EU president for his pre-referendum deal. But investors are not impressed.

It is the oil output cap that impresses them least. What the parties agreed was to pump no more than they were producing in January, when output was close to record highs. Iran, which will soon be coming on stream following the removal of sanctions, is not part of the deal. There can be no surprise, then, that the price of oil fell by -6.5%, taking the shine off equities and sending the safe-haven currencies higher. (No, it does not make absolute sense that cheap oil is bad for share prices but that's the way it works at the moment.)

Britain's agreement in Brussels was no more of a surprise than the one in Doha. The prime minister apparently came away with a package which he can cement at this week's EC summit meeting. Investors suspect a fudge, and they are still edgy about the possibility of Britain's departure from the EU. That concern contributed to a fairly awful day for the British pound.

Never satisfied

It seems that investors can never be satisfied with the UK news or data. On Tuesday they were presented with a headline rate of inflation that was a tick higher on the month and bang on target at 0.3%. Their response was to spend the next six hours pushing the pound lower.

In fairness to the attackers, several of the component data did indeed drop into disappointment territory. Consumer prices fell by -0.8% in January and the core rate of CPI inflation, which ignores food and energy prices, was down from 1.4% to 1.2%. 

Even so, it is hard to avoid the thought that sterling's treatment yesterday was unduly harsh. It only lost a dozen or so ticks to the Canadian and Australian dollars but its average loss on the day was -0.7%. The pound conceded twice that much to the yen and it was down by a cent and a quarter against the euro and the US dollar.

Moving on

The battered pound will have to climb back into the ring again this morning. At half past nine it must confront the UK employment figures. In recent months these have tended to be on the helpful side but past results are no guarantee of future performance.

Analysts expect UK unemployment to have fallen to 5%, a level last seen in 2008. However, investors pay at least as much attention to the pace of wage growth, which could well have slowed from 2% to 1.9% a year. Any worse numbers could lead to another attack on sterling.

Other than US industrial production there is not much else on today's ecostat agenda. The Federal Open Market Committee minutes come out at 19:00h.