From left field

Well that was unexpected

Three years short of the bicentenary of its invention by Levi Parmly, the reputation of dental floss is in jeopardy. A survey by Associated Press has found the evidence for flossing to be "weak, very unreliable" and having "a potential for bias". Unlike the evidence for selling sterling then. Or is it?

With two days remaining until the "certainty" of a rate cut by the Bank of England, and in the wake of dismal data from Britain's manufacturing sector, it might have been reasonable to expect sterling to be under pressure yesterday. The only UK ecostat on the agenda was the construction sector purchasing managers' index; not a statistic renowned for moving the pound. It was forecast to come in at a three-year low around 44.0, well into the sub-50 zone that indicates contraction.

The actual figure was 45.9, still in the shrinkage zone, but investors greeted it with delight because it was better than expected. By the end of the day sterling had picked up a cent against the euro and nearly a cent and a half against the US dollar. The size of the move would have been a wholly disproportionate reaction to what was still a pretty rubbish figure. However, the PMI catalysed a round of short-covering that was almost bound to take place at some point ahead of tomorrow's Bank of England announcement.


There were other counter-intuitive performances on Tuesday too, from the Japanese yen and the Australian dollar. Both did better than the fundamentals might have suggested.

In Japan the prime minister confirmed a spending programme that will inject ¥28tr (£208bn) into the economy. Government profligacy on such a scale, combined with negative interest rates and central bank money-printing, would normally be negative for the currency concerned but in this instance it was "disappointing" and the yen was the day's top performer.

Similarly with the Reserve Bank of Australia, a widely-anticipated rate cut was quickly forgotten. The Aussie shared second place for the day with sterling, strengthening by an average of 0.6% against the other dozen most actively-traded currencies.

More PMIs

The first two of today's services sector PMIs came from Australia (up by two and a half points at 53.9) and China (smaller companies a point lower on the month at 51.7). The rest of the day's readings are also likely to come in at 50 or higher… except for Britain's.

The preliminary figure a fortnight ago put the UK services PMI at 47.4 and analysts are not inclined to challenge that number this morning. But even if the 47.4 estimate proves to be correct it is impossible to anticipate the market's - and the pound's - reaction.

For sterling against the US dollar this will be the first of three significant event risks before the weekend. Tomorrow's is the Bank of England announcement and Friday's US employment report represents the third. Anyone with Cable to transact should get their ducks in line.