Sterling down a bit

Negative interest rates are supposed to discourage investors from keeping money in the bank. If they take it out in €500 notes they can fit €4m into a handbag and still be within certain budget airlines carry-on limit. So the European Central Bank is discontinuing the €500 note. 

In fairness, the discontinuation of a note which most people have never seen is aimed more at money launderers and tax dodgers than at those who would pervert the course of monetary policy. Even so, the ECB has reason to be concerned that things are not working out as it had hoped. So far this year the euro has strengthened by 7% against sterling and by 5% against the US dollar. That is not helpful when the central bank is struggling to drag inflation up from -0.2% to +2.0%.

The euro missed out on the top slot yesterday but it still managed to move a quarter of a cent higher against sterling. That did not come as a particular surprise but it was fascinating to see the US dollar, the Swiss franc, the Japanese yen, the Australian dollar, the Swedish krona and the Norwegian krone all making identical 0.2% gains against the pound. In other words, sterling was down a bit and not much else was going on.

PMIs disappoint

Among yesterday's dozen or so services sector purchasing managers' indices only three beat forecast and only three were higher on the month. The lack of sparkle added to investors' concerns about global growth and weighed on equity and commodity prices. The rand took the biggest hit for a second day.

Normally, that mood would have led to some sort of flight to safety, with investors abandoning the "risky" commodity currencies and embracing the "safe" yen and euro. Although the South African rand and the Canadian dollar were the two weakest performers it did not quite work like than on Wednesday. The yen, the euro and the Aussie were unchanged on the day against one another while the NZ dollar put in the top performance, adding nearly a cent.

Sterling's case was not helped by another disappointing PMI, this one from the construction sector. The reading fell two points short of forecast at 52.0.


Sterling faces its third PMI challenge today when the services sector figure comes out. Services account for 80% of the UK economy so if the number falls appreciably short of the forecast 53.5 the pound will have something to worry about.

With half of Europe closed for Ascension Day there will be no ecostats from the euro zone. There are not many from North America either, just US jobless claims and Canadian building permits. There are, however, three regional Federal Reserve presidents with speaking engagements.

The biggest data event of the week comes tomorrow, with the North American employment numbers. US non-farm payrolls are expected to be up by 200k. The change in average earnings will be watched at least as closely