Broken Cable

Fanning the flames

If investors in the Far East didn't like the tone of the prime minister's Brexit speech yesterday morning investors in London liked it even less. As soon as they arrived at their desks they showed their disapproval by giving the pound another nudge down its all-too-familiar slippery slope.

The bulk of the move took place in the first couple of hours of the London session although later in the day Cable came within half a cent of creating a 31-year low for sterling against the US dollar. A three-year low against the euro added to the impression that the €1.14 area has become an important support level. Sterling's best performance was against the Japanese yen, where it is unchanged on the day. Overall it took an average daily loss of -0.7% against the other dozen most actively-traded currencies.

It was a surprisingly vigorous reaction to what, on the face of it, was a fairly unrevealing brexit-means-brexit speech by Ms May. The chancellor's admission that Britain's fiscal deficit will not be eradicated by 2020 also ought not to have raised any eyebrows. But both of them fed the uncertainty that is proving so damaging to the pound and there will be another six months of this before the departure process even starts.

Makers advance

There were more positive surprises from the European and US purchasing managers' index data. Nine of the eleven readings for September matched or exceeded the previous month's result. Five, including the UK, also beat analysts' forecasts.

Britain's manufacturing PMI came in at 55.4, rising by a point on the month and blowing away the pessimistic forecast of 52.1. It was the highest reading of those announced at the weekend and on Monday and probably helped the pound avoid more serious punishment yesterday.

Both US measures - from Markit and the ISM - scored a 51.5, not stunning but also not an obstacle to a Federal Reserve rate hike. Cleveland Fed president Loretta Mester is certainly in favour of one, as she told a TV interviewer yesterday. Ms Mester believes an increase is possible next month, election or not, but her colleagues may be less keen on making a move that could look politically loaded.

RBA policy unchanged

This morning the Reserve Bank of Australia said that it was keeping the Cash Rate at 1.5% for a third month. The wording of its statement left open the possibility of a further cut in the future.

The RBA board "judged that holding the stance of policy unchanged at this meeting" would be appropriate. The words "at this meeting" implied that the decision at the next meeting might not be the same. The Aussie dollar dipped slightly after the announcement.

Australia's rate announcement was the highlight of today's agenda. At second place on the bill is Britain's construction sector PMI. With the pound under renewed downward pressure and Cable at a 31-year low the number will be of greater importance than usual.