What happened to yield?

Not Veblen goods

In the last month the euro was among the front-runners, not quite up to the pace of the Swiss franc, the Swedish krona or the Japanese yen but there or thereabouts. So what do the four currencies have in common? What makes them so attractive to investors? They all have negative interest rates. They are expensive to own.

This is not, of course, a case of the conspicuous consumption identified by Thorstein Veblen: he was thinking more of $200k handbags and million-dollar watches. Investors have been buying the currencies despite, not because they are expensive. Their interest rates are negative to discourage buyers. The central banks' aim is to hold down their currencies' value and to stave off deflation. And strategy isn't working: Japan's yen has been the strongest performer every day this month, rising by 4.2% since the beginning of April.

Minutes don't matter

So if investors are obviously not "chasing yield", why are they so antsy about the Federal Reserve's sluggishness in raising US interest rates? The minutes of the March FOMC meeting, released yesterday, pointed to two more increases this year and nobody is convinced.

The Federal Open Market Committee minutes seemed to support the idea of two interest rate increases this year. Shortly after their publication yesterday evening St Louis Fed president James Bullard told a TV interviewer much the same story. Yet investors remained unimpressed. The US dollar was Wednesday's third-weakest performer behind the South African rand and the British pound. 

Needless to say, sterling had another difficult day. Its one redeeming feature was the way Cable rebounded from $1.40. The psychologically-important round number provided support that had been conspicuously lacking when it was tested six weeks ago. The question now is whether sterling will find similar support against the euro from the support-resistance line at €1.225.

Central bankers abound

A hopelessly short list of ecostats today will provide little to inspire investors.  However, the heads of the European Central Bank and the US Federal Reserve both have speaking engagements and three former Fed chairmen will be joining Janet Yellen on a panel discussion in New York.

There are no economic data of any consequence from Britain or Europe. America reports on weekly jobless claims, whose importance is lessened by the switch in focus from job numbers to wage inflation.

Mario Draghi will attend Portugal's Council of State, the president's advisory board. No time has been announced and it is unclear if his comments will be reported. This evening the Fed chairperson will join her predecessors Paul Volcker, Alan Greenspan and Ben Bernanke in a panel discussion at International House, a New York academic institution.