Old Lady sits back?

The perplexing pound

Speculating on the British pound is not for the faint of heart. This most intractable of currencies has a long history of biting the hand of those who trade it, supporters and detractors alike. It managed to bite both groups yesterday.

Investors had been expecting Wednesday morning's UK jobs data to show unemployment steady at 4.9% with a small increase in the number of jobseekers and a 2.1% rise in average earnings. Except for a slightly disappointing 5k more jobseekers that was pretty much what they got. Moreover, the number of people in work was the highest ever and the 74.5% employment rate (the number of people working relative to the number of people of working age) was the highest since the calculation was first made in 1971.

Despite the reasonable numbers sterling had started to move lower by lunchtime. It began to look as though the pound was in for another trashing. Then, at around three o'clock and having lost half a cent to the euro and the US dollar, sterling rebounded from €1.17 and its recovery proceeded across the board. On the day the pound was a net 0.3% higher, on average, against the other dozen most actively-traded currencies. Its only loss was a quarter of a yen, a decline of -0.2%.

Commodity concerns

The Commonwealth dollars were among the worst performers, with the Canadian one and the Australian one bringing up the rear. Canada's problem was a -3% fall in oil prices; Australia's was another whacky set of employment data. 

In the last couple of weeks there has emerged a background nervousness in financial markets, stemming from a suspicion that central bank quantitative easing on the grand scale has run its course. That concern has pushed bond yields higher and generally undermined the price of shares and commodity-related currencies.

More specifically, the last 24 hours have cost the Loonie a cent and a half and the Aussie a cent and a quarter. The falling oil price had its usual effect on the Canadian dollar and the Australian dollar was put in a spin this morning when the jobs data did not remotely resemble the numbers expected by investors. Australia's employment statistics confound as often as they conform to analysts' forecasts: this time unemployment was down at 5.6% instead of steady at 5.7% even though 4k jobs were lost instead of 15k being added.


It would be astonishing if the Bank of England were to alter monetary policy today. That means the main takeaway at midday will be the minutes of the Monetary Policy Committee. 

Anything other than a 9-0 vote against a further rate cut would hurt sterling.

The Swiss National Bank will also make a policy announcement this morning. There, too, no change is expected but the SNB has a habit of surprising investors to keep them on their toes. This afternoon's American retail sales figures will be important to the US dollar.