Sterling success

Technical serendipity

It was an interesting start to the week, one that saw the pound on the top branches for the first time in more than three weeks. An uncharitable critique would be that sterling got lucky: the major currencies did seem to get chucked around in an almost random fashion.

There was certainly an element of luck in the way sterling and the euro both encountered technical resistance against the US dollar at about the same time in mid-afternoon. When one broke upwards the other followed suit. In the end sterling, the euro, the Australian dollar and the Norwegian krone were in a photo finish for the top slot with the euro snatching victory by less than a dozen ticks.

No particular disasters weighed on the US dollar. The Chicago purchasing managers' index was just about on target at 58.9 and pending home sales were up by 1.5% on the month. The precipitate departure of Anthony Scaramucci, the president's director of communications, did not help the dollar's case, though. The Queens wordsmith had been in the post for only a few days and his sacking drew attention to the White House rivalries that investors perceive to be hindering the administration's legislative agenda.

RBA on hold

As expected, the Reserve Bank of Australia kept its cash rate benchmark unchanged at 1.5% after this morning's meeting. After dissecting the language of the RBA's statement investors decided that an early rate increase is unlikely. The Aussie lost a little ground on the news.

There has been much excitement in recent days that the Aussie is knocking on the door of US$0.80, a level it last saw more than two years ago. Ahead of the RBA announcement it traded above that level, apparently in anticipation of a hawkish statement. 

The hawkishness was not to be found. Rather, the RBA said in effect that the strong currency made a rate increase less necessary because it "would be expected to result in a slower pick-up in economic activity and inflation". So back fell the Aussie.

Euroland growth

This morning the EC reports on Euroland gross domestic product in the second quarter of 2017. It is forecast to have been similar to the 0.6% expansion reported last week by the United States. The agenda is also littered with purchasing managers' index readings.

Yesterday's €Z data showed unemployment falling to 9.1% and inflation steady at 1.3%. Today's are expected to reveal that the economy is still expanding at a decent pace. If the European manufacturing PMIs look reasonable it would be fair to expect the euro to continue its advance against the US dollar.

The UK data are limited to Nationwide's house price index and the manufacturing PMI. The Nationwide has already reported 0.3% and 2.9% monthly and annual increases, an upside surprise to those who thought the property market was struggling. The manufacturing PMI is expected to be unchanged at 54.3, an okay number but one that trails the euro zone.