Two steps back

Not soon enough

The minutes of the Federal Open Market Committee three weeks ago were hardly a surprise but they did disappoint investors who had been hoping - perhaps unreasonably - that they would hint at a rate increase next month. They didn't, so the dollar retreated.

"Many" participants believed it "might" be appropriate to increase the federal funds rate "fairly soon". That already non-committal observation was further diluted by the proviso that the increase would happen only "if incoming information on the labor market and inflation was in line with or stronger than [members'] current expectations or if the risks of overshooting the Committee's maximum-employment and inflation objectives increased." In other words the FOMC wants to see more employment and inflation evidence before it takes the plunge.

Having strengthened immediately ahead of the minutes' release the dollar withdrew by half a cent. It gained a net half-cent on the day against sterling and lost a fifth of a cent to the euro.

Not enough investment

After two days on top it was perhaps inevitable that the pound would have to give some back. In characteristic fashion it retreated to the back of the field while the South African rand took the lead, a situation that had not been seen since, ooh, eight days ago.

Yet again, some questionable UK data were used as a retrospective excuse for a downward move that had begun almost as soon as London opened. In this case it was the revised figures for fourth quarter gross domestic product, which expanded by 0.7% rather than the initially-estimated 0.6%. Unfortunately any joy at the upward revision was outweighed by a -1.0% fall in business investment. Sterling went from hero to zero, falling by an average of -0.6% and losing three quarters of a euro cent.

Meanwhile the rand was making the most of what was seen as a fiscally-prudent budget speech by finance minister Pravin Gordhan. It may be that, in time, the tax increases dampen overseas appetite for South African investments but, for the moment, the package has the approval of investors.

Bits and pieces

Most of the ecostats scheduled for release today and tomorrow are of relatively minor importance. Only one of them - today's CBI Distributive Trades Survey - should have any direct impact on sterling.

German data this morning cover consumer confidence and revised fourth quarter gross domestic product. The first estimate of GDP put growth at 0.4% and that number is not expected to change today. Dennis Lockhart of the Atlanta Fed and the Reserve Bank of Australia's Philip Lowe have speaking engagements later in the day.

Tomorrow brings the figures for Canadian inflation and US new home sales and consumer confidence (the University of Michigan version). Making up the numbers along the way are ecostats for Swiss industrial production, South African producer prices, Italian consumer and business confidence and US jobless claims. Sterling's fate will depend more on sentiment than on the economic data.