STERLING REFRESHED AFTER ITS LONG WEEKEND
The previous week’s problems have been superseded by swine flu. UK purchasing managers are more positive than most. The Canadian economy shrank for a seventh successive month in February.After showing early promise that took it as high as $1.7950 the pound fell back at mid week, testing lows around $1.7550. It opened in London this morning at $1.77, unchanged from last Monday’s starting point.
It took a surprisingly short time for sterling to shake off the previous week’s depression. By Monday morning the budget and the alleged potential downgrade of UK sovereign debt had lost their place in the headlines, replaced by the swine flu pandemic. Investors tried to get their heads around the implications of a disease that could kill every man, woman and child in the galaxy. In a triumph for commonsense it only took the market a couple of days to come to two conclusions: Swine flu was nowhere near as lethal as HIV, SARS, MRSA or malaria, and there would be no such thing as a “safe” currency in an extinction event.
With their eye back on the ball, investors looked at the data and decided they were not so bearish about sterling after all. The Confederation of British Industry’s Distributive Trades Survey was a particularly positive surprise. On a scale of -100 to +100 the balance came in at +3, a huge 47 points higher than the previous month. It was the most positive outcome since January last year. A more optimistic attitude among consumers was confirmed by Gfk’s index of consumer confidence. Although still well into negative territory it rose for a third consecutive month. The third bonus came with Friday’s manufacturing sector Purchasing Managers’ Index. It went up by another three and a half points to 42.9 in March, maintaining its lead over equivalent measures from Euroland and the United States.
Where the United States and European countries examine their economic performance on a quarterly basis, Canada does it every month. The figures for February showed a seventh monthly shrinkage in GDP, this time of 0.1%. Altogether the Canadian economy contracted by 2.3% on the year. The only other Canadian figure last week was the Conference Board’s index of consumer confidence. Nearly a third of the survey group felt worse off financially than they were six months ago; only one in nine felt better off. On the other hand nearly a quarter think things will be better by the end of the year and just one in seven disagrees.
With sterling looking perky against the US dollar at the start of this week it is possible to argue that it should gain ground on a broad front, given recently positive UK economic data. On the other hand, the pound still shows no sign of moving away from the trading range that has held it (mainly) between $1.70 and $1.85 since December. Buyers of the Canadian dollar can therefore stick with the tried and tested strategy of hedging half their exposure. Those requiring absolute price certainty should, as usual, cover the whole amount.
Post courtesy of TTT Moneycorp
