Sterling lacks festive Cheer – 4th January 2016

The Christmas and New Year holiday was not a particularly enjoyable one for Sterling as it weakened by an average of 0.3% against the other dozen most actively-traded currencies. Between Christmas Eve and today the Japanese Yen has been the stand out leader largely due to the increasing political tensions between Saudi Arabi and Iran.

China provided some balance this morning with a half-point fall in the Caixin purchasing managers’ index, to 48.2, and a subsequent sharp drop in Shanghai share prices. The 7% fall in equities might have been greater had it not been for the “circuit breaker” anti-volatility mechanism which came into action for the first time today. The news inevitably reawakened fears about the Chinese economy and weighed on the Antipodean Dollars.

Nobody paid much attention to the economic data at the end of last week. US pending home sales fell by -0.9% in the same month and Greek retail sales were down by an annual -3.9%. The Chicago purchasing managers’ index, once upon a time the only PMI that anyone cared about, was down by six points at 42.9, it’s biggest monthly decline since July 2009.

It made little difference to the US Dollar, which strengthened by a third of a cent against the Euro and by nearly a cent against Sterling over the long weekend.

It is a busy week ahead with the monthly round of manufacturing sector PMIs starting today and the week ending with the closely-watched US employment report. As well as the Chinese measure, the Japanese and Australian PMIs were slightly lower on the month at 52.6 and 51.9. Sweden’s 56.0 was the best in nearly two years. The UK figure is expected to be almost unchanged at 52.8, slightly behind Euroland’s 53.1 but better than the two US readings.