Blog

Sterling held it’s ground – 19th January 2017

 

Sterling held it’s ground

After Tuesday’s strong performance by Sterling, it wouldn’t have been much of a surprise had Sterling given back some of those gains yesterday however, that didn’t happen and Sterling held it’s ground end the day more or less unchanged. Even the UK employment data failed to shift Sterling.

There was nothing at all wrong with employment numbers with unemployment steady at 4.8%, its lowest level since the global financial crisis. Jobless claims fell by 10,000 when they were expected to increase while average earnings were up by an annual 2.8%, beating the 2.5% rise in the retail price index and the CPI’s 1.6%.

Sterling didn’t really react which seemed to sum up investors mood as they were not overjoyed or underwhelmed. The data though was good enough to ensure Sterling held onto the advantage it had gleaned on Tuesday as it’s biggest gain was the cent and a half it gained against the Canadian Dollar; the biggest loss was half a US cent. Against the Euro it was was unchanged.

The US and Canadian Dollars were at opposite ends of the spectrum, both driven by the comments of their Central Bank Chiefs. The Fed’s Janet Yellen confirmed that US rates are going up, while the BoC’s Stephen Poloz said Canadian rates might go down. Mr Poloz also created the biggest news with a nod towards tomorrow’s US President he noted a “heightened uncertainty about trade policies in particular” and said “a rate cut remains on the table”. The Canadian Dollar quickly lost a swift half-cent to the US Dollar and continued lower for the next couple of hours to become Wednesday’s weakest performer.

By contrast, the Federal Reserve’s Janet Yellen was unremittingly upbeat about the US economy, saying it was “near maximum employment and inflation is moving toward our goal”. That being the case, the Fed is expecting to increase interest rates “a few times a year”. The US Dollar was consequently the day’s leader of the pack and it added a net half-cent against Sterling.

Britain’s prime minister makes another appearance today when she attends the World Economic Forum in Davos. It will not be easy for her to recreate the same Sterling-positive mood that she achieved on Tuesday. Nor can Mr Trump’s inauguration tomorrow be assumed to take the US Dollar higher.

Since Ms May gave her Brexit speech a couple of banks have confirmed that they will have to move jobs from The City to an EU centre. Although it did not come as a surprise, the prospect of more of the same will not be supportive of Sterling and it will be difficult for the Prime Minister to dispel that concern.

At the end of last year investors bought into the idea of Trumponomics; tax cuts and infrastructure spending. More recently they have been faced with the less acceptable face of Trumpolitics; import taxes and threats to car manufacturers. The latter could trump the former when Donald takes the helm.