Industrial production in Britain falls by less than others. Four-day week and lack of data dampens activity. More of the same likely this week.
Last Monday’s $1.49 opening level was within half a cent of the week’s high, achieved a couple of hours later. An afternoon dip took the pound down to a $1.46-$1.48 range from which it did not escape for the rest of the week. Bank holiday Monday saw it back up to $1.4850 and that is where it was trading when London opened this morning.
Sterling’s daily movement – or lack of it – last week seemed to owe more to chance than to any fundamental economic factors. Its net performance against the majors was almost random; virtually steady against the dollar, down by two yen and a cent and a half better against the euro.
The shortened week meant fewer economic data than usual. Britain’s balance of trade and the producer price index brought marginal improvements: the trade deficit narrowed slightly, as did the gap between manufacturers’ costs and factory gate prices. Nationwide’s index of consumer confidence hit a record (five-year) low at 41 in March, two points down from he previous month.
The figures that everyone chose to ignore were those for industrial production in February. In no way could the 1% monthly fall have been considered good, let alone the 12.5% annual decline. However, judged against the opposition, the numbers were less than embarrassing. Britain’s 1% monthly fall does not look so shoddy when compared to The United States’ -1.4%, Germany’s 2.9% and Japan’s 9.4% for the same 28 days.
Thursday’s interest rate decision was always going to be a non-event and that was how it turned out. A brief press release from the Bank of England noted that its 0.5% Bank rate would continue until (at least) May and that it would buy another $49 billion of gilts over the next two months.
The US agenda was as sparsely populated as that for the UK, even though New York does not bother with bank holidays at Easter. The only figure with any potential impact was the February balance of trade. In the event it went through almost entirely unremarked, even though the deficit narrowed by nearly a third to $26 billion.
On the non-data side there could have been a reaction to the Federal Open Market Committee’s minutes if they had come up with any surprises. The most contentious aspect of the minutes was a downgrade in the Fed’s longer term projections for the economy. The news was met by investors with little more than a shrug.
This will be another slow week for UK and US data. Industrial production and retail sales will be the US highlights while house prices and retail sales are the only offerings from Britain. A net no-change (give or take half a cent) in the last eight days offers little indication of which way things will go between now and next Monday. We must therefore stick to the tried-and-tested neutral approach until there is a clearer pointer to future direction: Buyers of the dollar should continue to hedge their exposure, fixing a price for half of whatever they need and using a stop order to protect the balance against unexpected nightmares. If price certainty is essential there is no alternative but to cover the whole amount.
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