On the defensive
Following hard on the heels of the UK inflation data, which showed consumer prices rising by 2.7% on the year, news that average wages rose by an annual 2.4% confirmed that prices are outstripping earnings. The one consolation among the employment data was that unemployment had fallen to 4.6%, its lowest level in more than 40 years.
A day later investors were pleasantly surprised by retail sales, which were up by 2.3% on the month and by 4.0% on the year. Despite talk of the Easter spending spree being financed by increased credit card debt the pound responded positively.
Even so, the reaction was not enough to save the pound from a losing week, one which was compounded by the prime minister’s retraction of a controversial manifesto pledge to revamp social care contributions. The pound fell by an average of -0.8% on the week against the other dozen most actively-traded currencies.
On the ropes
America’s dollar had an even more torrid time, losing four fifths of a cent to sterling and falling by an average of -1.4%. Investors did not really care that US industrial production had increased by 1.0% in April or that the Philadelphia Fed’s manufacturing index jumped from 22.0 to 38.8. They were more concerned about the stability of the administration and how it might adversely affect the president’s expansive plans for the economy.
Among the new allegations levelled at Donald Trump are that he leaned on ex-FBI-director Comey to drop the investigation into the short-lived national security advisor Michael Flynn and that he asked other FBI officials not to investigate his links with Russia. The Justice Department weighed into the fray by appointing a special prosecutor to look investigate.
On the march
Principally because of the goings-on in Washington, the safe-haven currencies were in demand. Japan’s yen strengthened by 1.5% against sterling and by 2.1% against the US dollar. The euro strengthened by two cents against the pound, 1.7%, and its constant companion the Swiss franc, was at its side.
The euro has been the star over the last month, rising by 3.3% against sterling and 5.2% against the US dollar. President Macron’s victory in France and Chancellor Merkel’s regional election wins in Germany have contributed to a sense of stability in the euro zone that was slightly lacking a month ago. There are still concerns about Greece’s debt: a meeting this week failed to reach a conclusion about easing the financial burden yet it is beginning to look as though €Z leaders are minded to do something for Athens as long as they can do it without annoying their voters.
Angela Merkel put the seal on the euro’s victory on Monday. She told a Berlin audience that “the euro is too weak… because of European Central Bank policy”. Investors responded immediately, adding half a cent to its value.
The good news
Brazil’s real has strengthened by 3% over the last five days.
The bad news
That still leaves it 6% down on the week. Last Thursday it was trashed after a newspaper revealed a tape-recording which appeared to implicate President Michel Temer in bribery. A second presidential impeachment is not out of the question. The currency took an immediate -10% hit and the stock market went down by -8%.
Sarah, Senior Account Manager at Moneycorp
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