STRONG PERFORMANCE BY STERLING
UK industrial production rises in April. G8 endorses dollar as reserve currency. Loonie loses ground for no obvious reason.
Last Monday’s $1.78 opening was the low of the week. The pound strode ahead to reach $1.8450 on Friday and was still up at $1.84 when London opened this morning.
A much-reduced flow of UK economic data did no harm to sterling. The figures were a long way from perfect but they were an improvement over what had gone before. Even more important, they were generally better (or less worse) than anything the opposition could produce. The Royal Institution of Chartered Surveyors and the government both saw a slowdown in the falling price of real estate. The best news of all came with the manufacturing and industrial production data for April. Both were up on the month. Industrial production rose by 0.2%, slowing the annual rate of decline from 13.1% to 12.7%.
The National Institute for Economic and Social Research estimated that Britain’s economy grew by about 0.2% in April and 0.1% in May. If this month goes well, and if the third quarter remains positive, it will mean the end of recession as we know it. The Confederation of British Industry agrees that things are on the turn. It believes the slowdown is over but also thinks it will take a long time for the recovery to become noticeable. As The Independent summed it up; “Economy bottoms out but growth must wait, says CBI”.
The Loonie lost pace last week, slipping back against the Greenback and falling behind those other “commodity” dollars, the Aussie and the Kiwi. Although it is usually a cop-out to attribute currency movements to fate or chance, that is the way it looked. It was certainly not easy to blame its performance on the Canadian ecostats which were, in the main, tolerable. Housing starts went up to 128.4k units. The trade deficit was a tiny $200m: that it was a deficit rather than a surplus could have provided an excuse for sellers but it would have been a thin one. The new housing price index fell by 0.6% after losing 0.5% in the previous month; unfortunate but not a disaster.
Sterling/Canada has drifted out of its narrowing channel without picking a new direction. The recent range between $1.75-$1.85 is under threat but nothing has happened yet. Buyers of the Canadian dollar should use a stop order to protect against a surprise collapse but can still look for a break on the upside. There were signs of a breakout this morning but the $1.85 resistance held firm.
Post courtesy of TTT Moneycorp