Random walk

Clutching at straws

Sterling strengthened by an average of 0.3% on Monday, gaining ground against everything except the South African rand. It picked up a third of a US cent, two thirds of a euro cent and half a Swiss cent. But the pound's supporters should not feel too smug about its success.

Although the beginning of the rally coincided with the release of the CBI's Distributive Trades Survey for September it cannot have been that statistic that provoked the move: the figure came in well below forecast at -8 for a monthly decline of 17 points. 

So if investors were not buying the pound for fundamental reasons they must have been doing so for technical reasons. And sure enough, it was a three-year low for sterling against the euro that provided yesterday's creaky springboard. Proximity to July's 28-year low against the US dollar will have helped. But as rebounds go, Tuesday's was feeble and gives no reason to think the downward pressure on sterling has been relieved.

The best of the rest 

There was little or no correlation between exchange rate movements and any of Tuesday's economic data. A post-recession high for US consumer confidence was of no help to the dollar and a chunky Swedish trade deficit was not the root cause of the krona's -1% fall.

Data from Sweden showing a 10.3bn krona balance of trade deficit in August were offset to an extent by a 2.8% annual increase in retail sales. The krona's main problem, however, was Riksbank governor Stefan Ingves, who gave Svenska Dagbladet a downbeat assessment of Sweden's situation. The krona put in the day's weakest performance. By contrast the Conference Board's index of US consumer confidence was much stronger than expected, rising by two points to 104.1. Even so, the dollar strengthened only briefly on the news.

Today's US durable goods orders figure is likely to have more influence. Analysts forecast a 1.4% monthly increase in orders and investors can normally be relied upon to punish or reward the dollar when the durable goods orders reality varies from the durable goods orders prediction, which it invariably does. 

Unhedged mushrooms

Finally, a cautionary tale from the Irish Farmers Journal: Under the headline "Mushroom industry 'thrown into turmoil by Brexit" it reports that three growers in the republic have gone out of business with the loss of 130 jobs and €7m of exports. 

So how did they go bust? Well, they had contracts to sell their mushrooms to British retail chains at fixed prices. Fixed sterling prices. In the first six months of the year £1 of sales would have been worth, on average, €1.285: in the last three that would have fallen to €1.175, a 9% decline.

They could have avoided the losses by fixing a forward sterling/euro exchange rate for their revenues. Yes, by doing so they would have foregone any windfall gain that would have resulted from a stronger pound. But they would still be in business.