No one likes it
Forty-odd years ago the supporters of Millwall Football Club gained a reputation for picking unnecessary fights. In response to their denunciation by the media they came up with the chant: “No one likes us, we don’t care”. Sterling finds itself in a similar position after the Brexit referendum, an avoidable general election and a seemingly combative approach to negotiations with Brussels. Nobody likes it and even its usual supporters seem not to care.
That was very much the spirit over the last seven days. Three important sets of UK economic data came out, for consumer prices, jobs and retail sales. The first left the headline rate of inflation unchanged on the month at 2.6% after analysts had said it would tick up to 2.7%. The second put unemployment at a 42-year low of 4.4% when it was supposed to have been steady at 4.5%. The third showed sales increasing by a monthly 0.3%, in line with forecast.
Investors’ reaction was brutal. They punished the pound for the miss on inflation and showed it no compassion for the better employment and sales figures. The result was an average weekly loss of -1.3% for the pound and another wooden spoon to add to its growing collection. It lost two Swiss cents, one euro cent and four fifths of a US cent.
Comings and goings
The US president was able to keep himself on the front pages for another week, both for his comments and for further rotations among his advisors. Not all were negative for the dollar, though it did lose a cent to the Canadian dollar and a quarter of a cent to the euro. Donald Trump’s response to the deadly nationalist rally in Charlottesville failed to meet with approval from all quarters and there were several resignation from two of his advisory business councils. In response he sacked the remaining members and wound up the groups. More positively for the US dollar his dismissal of chief strategy advisor Steve Bannon was seen as a step towards a more cohesive White House.
The European Central Bank and the US Federal Reserve both made life slightly more difficult for their currencies when they published the minutes of their latest monetary policy meetings. In the case of the ECB it was an observation that the euro is at risk of “overshooting” against other currencies, having strengthened already this year by an average of nearly 5%.
With the Fed it was an apparently growing concern that US inflation is not picking up anywhere near as quickly as it is supposed to do. If the situation were to persist, investors assume the central bank would lose its appetite for the rising interest rates to which they have become so attached.
The good news
Downing Street has begun to release the long-awaited “position papers” which will set out its approach to the Brexit negotiations. Among other things, the government wants the best possible deal to have untrammelled access for firms who sell goods and services to the EU.
The bad news
The stance has mystified some EU leaders. Leo Varadkar, Ireland’s Taoiseach, expressed frustration to a Bloomberg interviewer when he said: “At the moment they have the best deal possible.”
Sarah, Senior Account Manager at Moneycorp
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