Normal service


After an heroic couple of days following the Article 50 letter it was back to reality for the pound on Monday. Sterling lost half a cent each to the US dollar, the Swiss franc and the euro. It fell by an average of -0.2% on the day. 

That -0.2% decline was flattered by the retreat of the South African rand which lost -2.4% to the pound, bringing its weekly loss to -7.4%. It turned out that it was not only investors who were unimpressed by President Zuma's decision to ditch finance minister Pravin Gordhan. The ratings agencies weren't either. At least, one of them took a dim view of the situation: Standard and Poor's downgraded the country's credit rating from BBB- to BB+. The difference might not look significant but it is: BBB- qualifies as "investment grade" while BB+ is classified as "non-investment grade", "speculative grade" or, more brutally, "junk".

The downgrade, which is likely to be followed by similar moves from Fitch and Moody's, will mean higher rates of interest on new borrowings by South Africa's government and its financial institutions. It could well also mean that the rand's 15-month bull run, during which it strengthened by 56%, is over.

Weaker PMI

Sterling bears will have been heartened by Monday's purchasing managers' index from the UK manufacturing sector. Having been expected to improve by half a point to 55.1 it in fact disimproved to 54.2 and helped set a negative tone for the pound.

The rest of the PMI crop brought a couple more surprises. Spain came in a point lower at 53.9 and France disappointed at 53.3 while the two US readings served only to confuse: one beat forecast and the other was below target. Euroland was unchanged and in line with predictions at 56.2.

Unemployment in the euro zone ticked down to 9.5% in February, its lowest level in almost eight years. €Z producer prices were unchanged on the month and up by 4.5% on the year.

Mystery seller

The Australian dollar took a step backwards after the Reserve Bank of Australia kept its benchmark Cash Rate on hold because the RBA once again refused to suggest where rates might go next. Ahead of London's opening the mystery sterling seller made a reappearance, knocking half a cent off Cable.

There were no data or news to justify the pound's fall this morning. Once again it looked as though someone was taking advantage of reduced market liquidity as the Far East wound down before London got going. 

In between yesterday's manufacturing PMIs and tomorrows readings from the services sector the agenda today is quite sparsely populated. The UK construction sector PMI should be roughly unchanged at 52.4. Euroland retail sales are expected to have gone up by 0.5% in February to a level 1.4% above the same month last year. North American balance of trade data are forecast to show a deficit for the States and a small surplus for Canada.