Sterling trails

Undervalued pound?

For two days on the trot the pound brought up the rear. Thursday's problem was the Bank of England governor Mark Carney: Friday's was the services sector of the UK economy. From Thursday's opening levels the pound is down by an average of -1.5%. 

The Monetary Policy Committee decided on Thursday, as expected, to keep the bank rate unchanged at 0.25%. Mark Carney then went on to introduce the Old Lady's quarterly Inflation Report. In essence, he said inflation will overshoot its 2% target and the MPC will do nothing about it. Investors had been hoping for something a bit more hawkish than that so they offloaded the pound. 

They studiously ignored the governor's observation that sterling had been trashed since the referendum, even though the economy is performing better than expected and Britain is still in the EU. Dr Carney came within an inch of saying that the selling has been overdone and the pound is undervalued. But he pulled the punch, so the pound went south.

Undervalued employees?

The purchasing managers' indices for the services sector in Germany and the euro zone were lower than the equivalent UK figure but they were better than expected, while Britain's reading fell short of forecast. The pound did not fall far but it did go down, losing an average of -0.5% on the day.

The services sector PMI had been expected to be about half a point lower on the month at 55.8. In fact it came in at 54.5, well short of forecast. Even though the figure was better than Germany's 53.4, France's 54.1, Italy's 52.4, Spain's 54.2 and the €Z's 53.7 investors were more concerned that it was below forecast.

America's two services PMIs came in at 55.6 and 56.5. They, too, were a touch lower than expected. However, investors were more interested in the jobs numbers that had come out an hour or so previously. US nonfarm payrolls comfortably beat forecast, rising by 227k in January, but a downward revision to November's number wiped out all but 13k of the excess and the 0.1% monthly increase in average earnings looked miserable.  As in Britain, slow earnings growth in the States is seen as an obstacle to economic growth and higher interest rates.

Undervalued euro?

Last week the White House said the euro was "grossly undervalued". Yesterday Wolfgang Schäuble, Germany's finance minister, said in an interview that the euro is too low and that it is the fault of ECB monetary policy.

The European Central Bank president will be appearing before the European Parliament's Committee on Economic and Monetary Affairs (ECON) this afternoon. The euro's performance will depend on how vehemently Mario Draghi defends a one-size-fits-all monetary policy that is supposedly inappropriate for the EU's biggest economy.

Ecostats ore thin on the ground today. Australian retail sales fell by -0.1% in December and China's services PMI was three ticks lower at 53.1. German factory orders increased by a monster 5.2% in December.