Interesting times

Rather too interesting

Sterling seems forever to be under the apocryphal Chinese curse: "May you live in interesting times". Last week was especially interesting for the pound: on three successive days it was the sole or joint leader, then on Thursday and Friday it was at the back of the pack.

Ahead of Thursday's announcement the majority of analysts looked for the Bank of England's Monetary Policy Committee to leave Bank Rate unchanged at 0.25% by a margin of six votes to two. It did exactly that, but then the governor went on to muddy the waters with the bank's quarterly Inflation Report. In it, the growth forecast for 2017 was marked down to 1.7%, in line with the IMF's estimate, and concern was expressed about stagnant wages.

The governor did promise that interest rates would begin to rise "sooner than markets expect" but it was a warning that investors have heard more than once. The sensation was that the governor was trying to talk up the pound - or at least to avoid talking it down - but investors were not buying it. As The Guardian put it: "Eventually, markets will decide that the Bank is all gong and no dinner."

Caught short

Since the beginning of the year a popular trade has been to short the US dollar against the euro. To date it would have delivered a profit of 12.5%. Some investors will therefore have been short of dollars ahead of Friday's US employment report. And they will have got their fingers burned.

The jobs data were good, in that they mostly beat expectations, but they were not exactly scintillating. A 209k monthly rise in nonfarm payrolls put the number of people in work 29k higher than forecast, hardly a big deal in a workforce of more than 146m people, and annual wage growth remained stuck at 2.5%. The numbers did, however, exceed forecast and investors felt obliged to take the dollar higher, squeezing out some of the short positions.

As a result the dollar was the joint-top performer between Thursday's opening and this morning, adding more than a cent and a half against sterling. It shared the lead with the Swiss franc, the Japanese yen and the antipodean dollars. The interesting pound was in last place with an average loss of -1.0%.

Quiet reflection

Since the dust settled following the US jobs data on Friday exchange rates have gone nowhere. Investors were plainly not ready to follow through on the dollar's rally but were equally reluctant to reverse it. Today's ecostats probably won't add much to the debate.

Data released overnight and early today showed a pickup in Australian construction and an increase in China's foreign reserves. German industrial production slowed by -1.1% in June, almost neutralising the previous month's increase. Norwegian manufacturing output was down by -0.6%.

This morning brings Swiss inflation, UK house prices (Halifax), South African unemployment and €Z investor confidence.  UK retail sales (BRC) come out tonight.