Sterling sinks, dollar dwindles

Habits forming
After Wayne Rooney snatched Sunday's prize for Dive of the Day at Bournemouth yesterday's worthy winner was Shaunae Miller, who threw herself over the line to win 400m gold in Rio. Sterling was in contention, as usual, but its -0.6% dive was well short of a personal best.

Even so, the pound was once again the weakest performer among the major currencies. Investors were buying oil, gold, commodities, shares, emerging market currencies, Japanese yen, just about anything that moved. Except sterling. Apart from the Rightmove house price index there were no UK economic data to cause trouble. Nor were there any pesky central bankers or politicians to talk down the pound. It seems to have come to the point where they are selling sterling simply because it is going down.

The US dollar did not have a much better day, leading the pound by a scant dozen ticks. There, also, the slippage owed nothing to any dodgy data or verbal intervention. For both currencies it is interest rates that are at the root of the problem. In sterling's case it is the Bank of England's threat to take rates even closer to zero: with the dollar it is the fading prospect of the long-awaited follow-up to December's rate increase by the Fed.

Unlikely bedfellows
After ending last week on the defensive the South Africa rand was at the front of the pack again on Monday, adding 1.6% against sterling. It has strengthened by 25.8% since the turn of the year, an achievement beaten only by the Japanese yen's 27.3% appreciation.

A combination of improved risk-appetite, higher commodity prices and reduced domestic political risk has made investors reconsider their attitude to the rand. Whilst in "normal" times they might be more wary of holding rand, the South African Reserve Bank's 7% benchmark interest rate underpins a level of return way above what is on offer from the mainstream currencies. 

As for the yen, the assumption is that it can only be a matter of time until the US dollar breaks below ¥100. If and when it does, Japanese corporations will be encouraged to repatriate even more of their overseas assets, further strengthening the currency.

First, inflation
There are consumer price index figures today from Britain and the United States.  One of the data sets is unlikely to disturb its currency: the other just might.

The CPI numbers for July will be the first post-Brexit-vote ecostats from the UK. They are likely to show a pick-up in inflation, not least because of the pound's tumble last month. However, they will do nothing to change the minds of the Monetary Policy Committee and should therefore have minimal impact on sterling.

It is arguable that the Federal Open Market Committee will pay just as little attention to the US inflation data: recent meeting minutes point to a greater focus on jobs and the economy. However, high numbers today could rekindle hopes of a rate hike.