Fed on track
The odd trio
Just about the only currency move that made sense on Tuesday was the South African rand's class-winning 1.1% rally. For the rest, only a conspiracy theorist could link the seemingly random ups and downs. Sterling came out of it alright with average gain of 0.2%.
The rand is up to its old yoyo tricks again. In the last five trading days it has placed last, last, first, last, first, accruing a net loss of an almost insignificant -0.3%. In common with so many exchange rates at the moment, Tuesday's move was motivated by politics: The African National Congress was said to be discussing ways of removing President Jacob Zuma from office. An ANC spokesperson later told Reuters the story was "a complete fabrication and not true" but the impact had already been made.
At the back of the field the euro, the Japanese yen and the Australian dollar were all down by -0.5%, half a euro cent. There was probably an element of profit-taking in the euro's correction and both it and the yen bore the brunt of a rebound by the US dollar, which was fractionally firmer against sterling. The Aussie's main stumbling block was a downgrade by Moody's of China's credit rating.
On Tuesday evening the president of the Philadelphia Federal Reserve said an interest rate increase next month is "a distinct possibility", adding "I continue to see three rate hikes for 2017 as appropriate." There was no reaction from the dollar.
After a bit of a wobble as a result of ructions at the White House, investors seem to be comfortable again with the idea of another two rate hikes this year, one in June and the other towards Christmas. Patrick Harker's observation yesterday did not come as a revelation but as a confirmation, hence the lack of reaction.
Neither did investors get excited by any of the purchasing mangers' index readings that clogged their screens during the day. For the €Z as a whole the manufacturing sector beat forecast, services fell a little short and the composite figure was on target at 56.8. Britain's public sector net borrowing was more than expected in April and the CBI distributive trades survey painted a picture of weak retail sales in May but nobody seemed particularly bothered by those either.
Mario, Steve and the minutes
The three items on today's agenda that will matter most are a speech by the ECB's Mario Draghi, a rate statement by the BoC's Stephen Poloz and the minutes of the FOMC meeting three weeks ago.
Sig. Draghi will be speaking at a conference on financial stability and may be questioned about the German Chancellor's "weak euro" comment on Monday. The Bank of Canada governor is expected to keep his benchmark interest rate at 0.5%. The Federal Open Market Committee will probably reveal nothing new.
The South African inflation data will be of interest because of tomorrow's South African Reserve Bank rate decision.