Poor old pound

Sentiment burden

The Sunday papers astonished readers yesterday with the revelation that rich people use the tax haven, Panama, as a tax haven. The really breathtaking bit was that 1.5m documents were stolen by a whistleblower. Even on the cheapest paper that's 7.5 tons. What could the doorman have been thinking?

The weight on sterling was even greater than that at the end of last week, making the pound Friday's worst-performing major currency by quite a margin. Thursday's UK data had shown greater-than-expected economic expansion in the fourth quarter of 2015, 0.6% instead of 0.5%, and strong mortgage approvals. On Friday morning Nationwide's index put house prices 5.7% higher on the year and the manufacturing sector purchasing managers' index came in 51.0, shy of the predicted 51.2 but two ticks better on the month. There was nothing among those figures to provoke a sterling sell-off.

So it must have been sentiment that sent it lower, because the pound lost an average of -0.8% on Friday - one euro cent - to the other dozen most actively-traded currencies. The Brexit threat continues to loom over sterling. On the week and the month it has fallen by an average of -1.4% and -2.6%, its only gains being against the US dollar. 

Data help dollar

Friday's US ecostats were helpful to the dollar but, except against the pound, their effect was fairly short-lived. Good as they were, they were not enough to make any real difference to the perception that the Federal Reserve is nervous about spoiling the economic picture with a too-hasty rate increase.

Nonfarm payrolls beat forecast by 10k, increasing by 215k in March, and average hourly earnings increased by a worthwhile 0.3%. The two manufacturing PMIs either met or exceeded forecast and consumer confidence looked okay at 91.0. 

In 90 minutes the dollar strengthened by a cent against the euro, only to give back more than half of that gain before the end of the day. Although market expectations for Fed policy vary almost by the week, Friday's data failed to make a case for higher rates in the near future.

Oil down, yen up

Reasonably or not, the current logic has it that lower oil prices do not just reflect, but actually cause economic weakness, increasing demand for safety. That seemed to be the case over the weekend, when the yen strengthened by 1.5% as the price of oil fell -4%.

The Australian dollar was one of the poorest performers, partly as a result of that general concern but also because of disappointing Australian retail sales, which were flat in February. The sales data on their own cost the Aussie a cent this morning.

Other data today cover Euroland unemployment and investor confidence, Britain's construction sector PMI and US factory orders. The Bank of Canada governor will be speaking this afternoon. Watch out too for the thorny matter of Greek debt, which threatens to raise its ugly head again as bailout talks recommence.