If it’s not one thing…
It was another case of good month, bad week, for sterling. Over the last 30 days the pound was the undisputed champion, strengthening by an average of 3.8% against the other dozen most actively-traded currencies, its smallest gain being the quarter cent it took from the US dollar. Over the last seven the picture was uglier, with an average loss of -0.7% which included one US cent and one and a half euro cents. Sterling’s only wins were one and a quarter New Zealand cents and a couple of dozen ticks on the South African rand.
What went wrong? Pull up a chair. On the economic front the rot started last Monday with a weaker-than-expected reading of the UK manufacturing sector’s health and it got into full swing when the construction sector reported on Tuesday that business was getting worse. The third of the three monthly barometer readings on Wednesday, from the services sector, was alright. Not fabulous but alright.
Unfortunately it was at that point that the focus swung from the economy to politics, after prime minister Theresa May made her inauspicious appearance at the Conservative conference. The remainder of the week was taken up with stories about the internecine struggle for control of the party and the Brexit negotiation stance.
It was not only sterling that suffered from political misfortune. The New Zealand dollar had a worse week than sterling and the Turkish lira had an awful one, losing -2.4%. Both currencies weakened sharply as markets opened in the Far East on Monday. The Kiwi’s problem was the confirmation that prime minister Bill English will not have an easy way of forming a coalition. His National party won 56 of the 120 seats and the Labour/Green alliance took 54. The balance of power will be held by Winston Peters and his populist New Zealand First party. If, as expected, he teams up with National, investors do not foresee a smooth marriage.
The Turkish lira took a whack after a fall-out between Ankara and Washington. A couple of local employees at the US consulate got swept up in the mass arrests which have been going on since the attempted coup d’état last summer. The United States responded by refusing to issue visas to Turks, to which Turkey replied with its own tit-for-tat ban for US citizens. Investors worry that Turkey is positioning itself ever further away from the West and that, by doing so, it will harm its economy.
An independence referendum held last Sunday by the government of Spain’s Catalonia region has been ruled illegal by the Madrid government and by the courts. Catalonia will therefore remain a part of Spain and within the European Union.
Although turnout was low, not least because the police were out in force to prevent the poll taking place, 39.6% of registered electors voted for independence. That is a larger proportion than the 37.5% of Britain’s electorate who voted to leave the EU last year. Regardless of the referendum’s legality, the Catalan leader reckons he has a mandate and is considering a unilateral declaration of independence. That would not be the optimum outcome for the euro.
Sarah, Senior Account Manager at Moneycorp
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