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Sterling and the US Dollar share top spot – 9th May 2017

Sterling and the US Dollar share top spot – 9th May 2017

Sterling and the US Dollar shared top spot yesterday, strengthening by an average of 0.4% against the other dozen most actively-traded currencies. The “win” though was almost by default as there was no significant UK or US economic statistics to support either currency.

That is not to say there was no UK data at all. Halifax’s house price index dipped -0.1% in April while the British Retail Consortium reported a 5.6% annual rise in April sales after a -1% fall the previous month. It would appear the shift of Easter from March to April was responsible for what the BRC described as a “brief boost to slowing spending”.

There is a suggestion that the US Dollar’s success was a delayed reaction to Friday’s employment figures and the increased chance of more interest rate raises in the pipeline. Financial futures prices now put an 80% chance on a hike next month and a 60% chance that there will be another one by Christmas.

The failure of the rest of the field to keep up was, in most cases, as accidental as Sterling’s and the US Dollar’s success. The South African Rand went from hero to zero, swapping Monday’s pole position for the wooden spoon despite an increase in the country’s foreign reserves. The Swiss Franc was the biggest loser amongst the majors, falling by a cent against Sterling and half a cent against the Euro as investors sold back the purchases they had made as a precaution against a Le Pen victory in the French presidential election.

It could be argued that the Aussie was the architect of its own one-cent decline overnight, which was triggered by an unexpected -0.1% fall in retail sales. However, the movable feast of Easter will have affected sales in Australia just as it did in Europe and North America so the -0.6% punishment looks unreasonably harsh.

Among the sprinkling of economic statistics and central banker appearances the only item on the agenda that really stands out is the Australian budget, which Treasurer Scott Morrison will present at about 10:30 BST. It will be important to the sustainability of Australia’s AAA credit rating. Although one school of thought has it that losing the triple-A ratings is more a matter of when than if, the agencies have publicly taken the line that their decisions will depend on the government’s willingness to cut spending. Today’s budget is expected to address that situation.