Rates can go up as well as down

Sterling firmer on MPC comment

The transition from zero to hero normally takes more than a few hours but sterling managed it swiftly yesterday, dropping a cent as London opened and making it all back - and more - by the end of the day. The pound scored daily gains across the board.

Sterling's early decline had no obvious cause. The day's only UK economic data were the Halifax's house price index readings. Prices were down by -0.9% in January, the first monthly fall since August last year. However, by the time the figures came out the pound had already made its downward move. So no cause-and-effect there: it was probably just a quick stampede by twitchy investors.

There was an element of that in the afternoon rally too. The scale of the move was disproportionate to its ostensible catalyst - a speech by Monetary Policy Committee member Kristin Forbes. In it she said "if the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in Bank Rate". The market picked up her idea and ran with it, perhaps further and faster than the observation warranted.

More than absurd

Although there were few economic data to enliven the day, political developments and events took up the slack. America's immigration ban, the Commons speaker's Trump ban, the Brexit process, the Greek bailout and the value of the euro all got a mention.

Bundesbank president Jens Weidmann said in a speech that it was "more than absurd" for the White House to accuse Germany of deliberately weakening the euro to gain business advantage. The British prime minister gave parliament a vote on the eventual Brexit treaty in return for allowing the Article 50 bill an easy passage. The US president said he would go as far as the Supreme Court if his executive order remained blocked. Everybody worried that trouble is brewing for Greece and, therefore, the euro.

In the end it was sterling that won the day with an average rise of 0.8% against the other dozen most actively-traded currencies and no losses. The pound added one yen, a third of a US cent and two thirds of a euro cent.

More of the same

Another dull agenda today offers little for investors to get their teeth into. The highlight is technically on tomorrow's list even though it will take place before bedtime.

This morning Spain reports on industrial output and Portugal on unemployment. The South African Chamber of Commerce and Industry releases its business confidence index. Canadian housing starts appear after lunch at the same time as MPC member John Cunliffe takes to the podium in Birmingham.

The greatest chance of excitement comes tonight with the Reserve Bank of New Zealand's interest rate decision and subsequent press conference. It would be a surprise to most analysts if the RBNZ were to make any change to its 1.75% Official Cash Rate.