A MESSY WEEK FOR STERLING BUT NO DANGER
UK data give no cause for new concern. Bank of England cautious about recovery. Canadian manufacturing sales at their lowest for ten years.Starting out from $1.75 the pound made erratic upward progress. Friday’s $1.79 peak was short-lived but it found easy support afterwards at $1.78. When London opened this morning it was trading at that level.
A potentially upbeat start to Sterling’s week came with a report from the Organisation for Economic Co-operation and Development. This members-only club announced that Britain was one of only a handful of countries that would soon see a turnaround – or at least a bottom – in their economic performance. France, Italy and China were also on the list while the US, Japan and Germany faced further “sharp falls” in output.
Britain’s residential housing sector delivered unusually good news on three sides. The Royal Institute of Chartered Surveyors’ House Price Balance improved by a dozen points to -60%; nowhere near good but a lot better than in previous months. The Council of Mortgage Lenders said mortgage approvals had risen by 29% in March. Although the number was still a third less than a year earlier it was a welcome increase. This morning the Rightmove property website reported a 2.4% rise in sellers’ asking prices. Asking prices are very different from selling prices but the upswing in sellers’ optimism was seen as a plus for the UK economy.
Negatives for sterling came with another rise in unemployment, this time to 7.1%, and a realistic assessment of the economy from Bank of England Governor Mervyn King. He said the economy would rebound and that it might take a while to get back to trend growth. Nothing obviously wrong with that. He said that it was impossible to predict how long it would take for the banks to resume full-scale lending activities. Also true. However, the market chose to focus on Dr King’s refusal to commit to untrammelled expansion from here on in. That sentiment weighed on sterling for the rest of the week.
The figure that hurt the Loonie was the 2.7% monthly fall in manufacturing sales. It looked particularly bad after a 2.2% increase the previous month. The trade balance looked fairly good, with the surplus widening to more than a billion dollars, but there too the signs of global slowdown were evident. Imports were at their lowest level for four years and exports fell by another 2%.
No longer are the commentators banging on about Britain’s economic underperformance. The evidence just isn’t there. There is a sporting chance that sterling will pull ahead in the next few weeks or months. Buyers of the Canadian dollar should place a stop order, somewhere above their threshold of pain, and bide their time.
Courtesy of TTT Moneycorp
