GDP salvages sterling

Kiwi wins again
The head of the chief constables' union told a BBC interviewer yesterday that victims of burglary can no longer assume the police will visit their home to investigate the crime "if an iPad was stolen".  Moral: If you want protection, buy a Nexus instead. Or maybe NZ dollars.

For a second day the Kiwi was the strongest-performing major currency. As had been the case a week earlier, investors marked the NZ dollar higher after the Reserve Bank of New Zealand warned that interest rates could fall further and that "a more substantial [exchange] rate depreciation will be required". It was not the subject of those warnings that encouraged buyers, it was their delicate tone. The RBNZ is no longer on the warpath.

The Canadian dollar took second place, adding a spontaneous cent in mid-afternoon allegedly in response to slightly firmer energy and equity prices. Not all the "risky" commodity-related currencies felt the benefit though: the Australian dollar was down by half a cent on the day and the rand was unchanged against the pound.

Relief rally on Q1 growth
The preliminary gross domestic product data for the first quarter showed Britain's economy expanding by 0.7% in the three months to end-March, in line with analysts' forecasts. Investors were evidently relieved: the pound strengthened by an average of 0.2% on the day against the other dozen most actively-traded currencies.

Sterling moved lower ahead of the GDP announcement, implying pessimism that the number would be lower than 0.7%.  When the figures emerged the pound recovered its earlier losses and continued higher. It added a net half-cent against the euro and took a third of a cent off the US dollar. Sterling's biggest gain was of 0.9% against the Swedish krona, which was held back by a third month of unprepossessing retail sales data. 

Tuesday's other ecostats attracted minimal attention. An unexpected fall in US consumer confidence made no difference to the US dollar and the yen did not respond to a monthly decline in Japanese retail sales.

Waiting for the Fed
Expectations are high that after its two-day monetary policy meeting the US Federal Reserve will… do nothing. Investors are, however, hoping for some clue in the statement as to whether or not the committee might be inclined to increase interest rates at its next meeting in September.

They are likely to be disappointed. Like other central banks the Fed does not make its policy decisions months in advance. The Fed chairperson has said repeatedly that the move will depend on the economic data, and there will be plenty of those between now and 17 September. Even so, expect investors to try to find some excuse for moving the dollar when the statement comes out.

Ahead of the Fed announcement there will not be much guidance from the ecostats. UK consumer credit and mortgage approvals might make some difference to sterling, as might the CBI's retail sales measure, but don't bank on it.