Politicians and commentators find reasons to be less gloomy. Even so, this week could be tricky for sterling.
For three days the pound held mainly above Tuesday’s $1.4850 starting level, touching as high as $1.5050 at one point. It fell back at the end of the week and was lower again in the Far East this morning. By the time London opened it was down to $1.4650, two cents lower on the shortened week.
On both sides of the Atlantic there have been murmurs that the end of the economic downturn may be nigh. Politicians have studiously avoided any mention of the “green shoots” that inspire such derision among cynics, and the word “tentative” is ubiquitous, but there seems to be a spreading belief that the bottom of the recession will come this year, followed by a return to slow but positive growth in 2010. President Obama spoke of “signs of economic progress”. Federal Reserve Chairman Ben Bernanke saw “tentative signs that the sharp decline in economic activity may be slowing.” The Royal Bank of Scotland’s survey of purchasing managers showed “further evidence that the worst of the downturn… may now be behind us.” Morgan Stanley economist David Miles, the chap who will replace Ã¼ber-dove David Blanchflower on the Monetary Policy Committee, was “guardedly optimistic” about the economy when he wrote about it in the Western Mail. The Confederation of British Industry says “there are a few tentative signs that the steepest phase of the recession is now behind us.”
Although they have been in short supply during the last couple of weeks the UK economic data can be used to support this understated optimism, as long as only the better ones are selected. In Britain the RICS house price balance improved for the first time in months. Rightmove’s house price index went up by 1.8% in April (admittedly it does not tell the whole story because it relates only to asking prices).
Looking at it from a US perspective also throws up a few straws at which to clutch. Ignoring the impact of food and energy, both of which have fallen from last year’s highs, factory gate prices went up by nearly 4% in the year to March: manufacturers are getting more money for their production. The New York Federal Reserve’s manufacturing index improved by 23 points, from -38 to -15. The Fed’s Beige Book survey of national economic activity endorsed the notion of a slowdown in the slowdown. The builders’ association NAHB saw a five point increase in its housing market index, from 9 to14, as potential buyers emerged from the woodwork.
The week ahead could be a tricky one for the pound. On the agenda, among other things, are inflation, unemployment, first quarter GDP and the Chancellor’s austerity budget. None of them is loaded with promise. Nor is the technical picture looking terribly clever for sterling/dollar. With half of the last three weeks’ gains already out of the window the danger is of a return to the lows of late March. Buyers of the dollar should increase their hedge beyond the usual 50% or be prepared to live with a pound four or five cents lower in the next few days.
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