The week’s economic statistics had little effect on sterling. One rating agency warns that gilts might lose their AAA status; the other two agencies disagree. US continuing jobless claims reached a new record.
An epic week saw sterling add seven cents in five days. There was a setback on Thursday that cost three cents but it was brief and sterling flirted with $1.59 throughout the long weekend. When London opened this morning it was trading at $1.5850.
The Daily Telegraph’s ongoing exposÃ© of parliamentary nest-feathering has had surprisingly little impact on sterling. It may be because there are similar such gravy trains in other countries or because investors expect no better of their politicians. Whichever, the market has studiously avoided pointing its finger at the currency – at least on that count. The week’s UK economic data were predictable enough to have little or no impact on sterling’s performance. CPI inflation went down in April but at 2.4% remains above target. The updated figure for gross domestic product in the first quarter was no different from the original -1.9% estimate.
The two events that did create waves were charts and credit ratings. On Wednesday sterling leapt higher after it broke above technical resistance. Although, in theory, only the sterling/dollar picture was affected, it scored gains across the board as the market picked up the mood. Less than 24 hours later the boot was on the other foot after one of the three big credit rating agencies warned that UK government bonds were under scrutiny for a possible down-grade. The panic passed almost as swiftly as it had struck when the other two firms said they were happy with gilts’ AAA status quo.
The dollar was on the back foot all week, as were the other safe-haven currencies. With the price of oil drifting higher and no new banking or other corporate disasters to scare them, investors were inclined to spread their cash around, putting more of it into the euro, the pound, and higher-yielding currencies. There were few US ecostats to influence market opinion and those that did appear were less than helpful. The number of housing starts in April was the lowest monthly total since records began in 1959. A slight improvement in weekly jobless claims was overshadowed by another record for continuing claims, which are now up to 6.6 million.
There is a sensation that the dollar is drifting lower because of lack of interest (no pun intended). Investors need a reason to buy it; in the absence of one they will stay way. Technically the pound looks due for a correction in the short term but the technical picture is positive. Buyers of the dollar should lift their stop order to somewhere above $1.54 and be grateful for the 8% by which sterling has improved since the turn of the year.
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