Sterling pulls it off

Divining Janet

The US currency had a reasonably good day, adding a third of a yen and strengthening by half a cent against the euro. Its performance owed something to the strong data for US new home sales. They rose by 12.4% in July, the biggest monthly increase in nearly three years.

But the main reason for the dollar's rise was sentiment. Investors have got it into their heads that when Federal Reserve chairperson Janet Yellen speaks on Friday she will do so in a hawkish tone, upping the ante for an interest rate increase before the end of the year and perhaps hinting at an August hike. Whilst Ms Yellen herself has said nothing to encourage this thinking, the supposition is that her deputy's own hawkish comments at the end of last week reflected the view of his boss.

Pound's progress, rand's relapse

Sterling was the best of the bunch on Tuesday, rising by an average of 0.7% against the other dozen most actively-traded currencies. Its smallest gain was a fifth of a US cent and its biggest was against the South African rand, which took a tumble.

The CBI's Industrial Trends Survey was the only UK ecostat and it did not disappoint. At -5 it came in four points better than expected. There was no immediate reaction to the figure by sterling but it will have encouraged more of the profit-taking that has supported the pound in the last few days.

The rand was cast adrift yesterday afternoon after finance minister Pravin Gordhan was summoned by police in connection with offences alleged to have taken place when he was head of the South African Revenue Service. Financial markets' respect for Mr Gordhan is apparently not shared by President Zuma and there is more than a whiff of political shenanigans about this latest move. Investors therefore marked down the rand, which is -4% lower on the day.

Not much to go on

With the delivery of economic statistics there is a feeling of feast or famine at the moment. Today is certainly a case of famine.

Overnight New Zealand reported a larger-than-expected trade deficit for June which made not the slightest difference to the NZ dollar. Revised gross domestic product data from Germany left second quarter growth unchanged at 0.4%.

This morning brings figures for South African inflation - irrelevant in the light of the finance minister's predicament - and the narrow BBA measure of UK mortgage approvals. The US housing price index and existing home sales come out after lunch. Tonight Japan reports on international securities investment flows and Australia publishes the figures for private capital investment in the second quarter.