Surprise Rally for Sterling – 12th April 2016

Surprise Rally for Sterling

Prices for Leicester City’s last home game of the season were released yesterday with a pair on the illegal secondary market reportedly priced at £15,000. At the same time, Sterling prices were also going higher albeit not at the same pace as it gained a cent against the US Dollar and the Euro.

The two events were, of course, unrelated however some suggested the reopening of parliament after its Easter break had rekindled faith in Sterling. Others attributed it to the successful sale of a Scunthorpe steel works. More likely, some mega-bear decided to take profit on short-Sterling positions and others were encouraged to do the same when they saw how easily Sterling rebounded.

It strengthened by an average of 0.3%, picking up around a cent each from the US Dollar, the Euro and the Swiss Franc. Sterling’s biggest gain was the 1.1% it took from the Japanese Yen, which suffered its own outbreak of profit-taking after having risen by more than 5% since the beginning of the month. Even after that the Yen remains April’s top performer with a gain of more than 4%.

As expected, Monday’s few economic statistics were of minimal importance or impact. Investors were more concerned with the further recovery of oil and commodity prices which helped the Antipodean Dollars and South African Rand.

Nobody much cared about the -0.6% monthly fall in Italian industrial output. They were far more interested in the prospect of a €5 billion deal to bail out the country’s weaker and more vulnerable banks, which will be funded by insurers, asset managers and the more solvent lenders.

This morning the focus will be on inflation across Europe. Germany was first out with its numbers and Sweden, Britain and Portugal will follow with theirs. The UK consumer price index is predicted to be 0.4% higher on the year. Germany’s figures were exactly in line with forecast, showing inflation steady at 0.3%. Sweden, Portugal and the UK are expected to come in a tick higher than that at 0.4%.

Nothing in those data is likely to change the outlook for interest rates. Investors have become inured to the idea of low inflation and low interest rates for the rest of time (even in the States there is no breathlessness about an imminent increase).  When inflation does remerge it might come as a shock but it won’t happen today.