Anticlimax

Buy the rumour, sell the fact

On Friday Janet Yellen completed the Federal Reserve's campaign to manage expectations of a rate increase this month. The chairperson still expects that "a cumulative 3/4 percentage point increase in the target range for the federal funds rate would likely be appropriate over the course of this year".

So did the dollar leap ahead following this observation? Not a bit of it. By the end of New York's day it was a quarter of a cent lower than it had been prior to her speech. Her colleagues had done such a good job of preparing the market that Ms Yellen's confirmation came as an anticlimax. Compared with Friday morning the dollar is down by a quarter of a cent, though it is a cent and a half firmer on the week and two cents above its level a month ago.

The dollar's resistance to upward pressure had been demonstrated earlier in the day when it failed to react to a stronger non-manufacturing purchasing managers' index from the Institute of Supply Management. At 57.6 it was a point higher on the month and it beat forecast by a similar margin. The lack of reaction was another sign that a US rate increase on 15 March was already fully priced in. Friday's employment report would have to be a shocker to alter that perception.

Sterling softer

After a positive day on Thursday, when it shared the lead with the US dollar, the euro and the yen, sterling lost it way on Friday after the UK services PMI came in a point lower than expected at 53.3. It net loss on the day averaged -0.2%, a fifth of a Swiss cent.

The weaker PMI was the latest in a string of recent UK economic indications that suggest Britain's economy could be flagging. It is not, however, only Britain that is feeling the pinch. PMIs from around Europe were also mostly either unchanged or lower on the month and Germany was the latest of several countries to report falling retail sales in January. 

Friday's top performer was the krona. It strengthened by 0.9% after news of a strong 2.0% monthly increase in Swedish industrial production. The NZ dollar was the overall loser for a second consecutive day.

Political tensions

Economic statistics will be thin on the ground today. In the Far East this morning New Zealand reported a 0.8% monthly increase in building permits and Australia bucked the trend with a 0.4% rise in retail sales. All that remains on the list is US factory orders.

Political tensions abound though. France's Republican party is squabbling over whether or not to replace François Fillon, its presidential candidate. America's president has picked another fight with his security services over alleged phone hacking. North Korea has fired missiles in the general direction of Japan. And we will always have Brexit.

There are two monetary policy announcements tonight: rates are expected to remain unchanged in Australia and China.