Back to work

Poll hampers pound

If prices in Nanavut, Canada, are anything to go by the UK government's tax on sugary drinks won't work. According to the CBC, one chap in Arctic Bay is ready to pay up to $20 a can for Coke when it is unavailable in the shops. That's £10.46 at today's prices.

A month ago it would have been an even more eye-watering £10.90. Since then sterling has strengthened by 4% against the Canadian dollar, as it has on average against the other dozen most actively-traded currencies. Every sign is that the pound's recovery has been driven by opinion polls pointing to a widening gap in favour of the Remainers at next month's referendum.

If so, it would explain why sterling was under pressure this morning ahead of London's opening. An opinion poll in today's Daily Telegraph gives Remain 51% of the vote, with Leave on 46%. That five-point lead is down from 13 points a week ago. The pound is still - jointly with the US dollar - the top performer over the three-day weekend but if that poll gap narrows further it will reawaken Brexit fears.

Ex cathedra

On Friday Federal Reserve chairperson Janet Yellen made her long-awaited visit to the podium. Would she endorse her colleagues' call for a rate increase in the next couple of months or would she ooze dovish caution?

In typically measured language, Ms Yellen confirmed that "probably in the coming months such a move would be appropriate". Although the comment fell a long way short of telling investors to gird their loins for an increase in two weeks' time, it was enough to reassure the world that members of the Federal Open Market Committee are all singing from the same hymn sheet.

That reassurance took the dollar higher on Friday evening and it found fresh support when the Far East opened yesterday before giving back all or most of its gains during the remainder of the day.  Compared with Friday morning's opening levels the dollar is unchanged against sterling and half a cent firmer against the euro.

Business as usual

With the US and UK bank holidays out of the way the FX market should be back to business as usual today. There is no shortage of ecostats on the agenda and a couple there are relatively important.

In the Far East Japan announced a monthly increase in industrial production and an unemployment rate steady at 3.2%. Business confidence improved in New Zealand while building permits enjoyed a bounce in Australia. German retail sales disappointed, falling again in April. This morning will also bring unemployment data from Germany and Euroland as well as the €Z inflation data.

US figures this afternoon cover personal income and spending, house prices and consumer confidence. Quarterly data from Ottawa are expected to show the Canadian economy expanding at an annualised rate of 2.9% in Q1, putting quarterly growth at 0.7%. The equivalent Australian GDP data come out tonight.