Normal service is resumed this week, with my forecast of sterling down in the 1.12s meeting up with the reality of the pound ending the week at 1.1430! A nice way to be wrong though, unless you are heading back to the UK, but I think the majority, me included, like to see as high a rate as possible. Not only was I wrong in where we ended up, but the pound actually plumbed some severe depths during the week, hitting 1.1045 at one point. Then we had a 3.5% swing between Wednesday afternoon and Friday evening.
A game of two halves - Monday to Wednesday
Same old story for the pound. Data released on Tuesday showed that the UK's manufacturing sector grew at its weakest pace for seven months in April. This data reduced even more the likelihood of an interest rate rise later in the week. Coupled with the likelihood of a series of Euro rate hikes this summer, it is not exactly surprising that the pound headed south at a fair lick, and at one point looked like it might collapse below the 1.10 level.
Second half fightback - Wednesday to Friday
I don't think anyone saw this coming. Certainly not me anyway.
On Thursday both the BoE (Merve and his mates) and the ECB left interest rates on hold as expected. What rocked the boat was the comments from the ECB president, Jean Claude Trichet. He adopted a much softer stance on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to take profits on the Euro's gains versus sterling earlier in the week. That started the ball rolling.
On Friday morning the markets were eagerly awaiting the UK PPI (Producer Price Index) data, looking for a poor figure to send the pound back down to levels seen earlier in the week. In the event, the PPI figures were much better than expected. Still down, but down by nowhere near as much as the market had anticipated. Thus the expected move down soon turned into a further surge for the pound.
In addition to all of this, there was an important piece of corporate news going on in the background. Glencore, a huge multinational commodities company, was to launch shares on the UK stock market. If you want those shares, you need to have sterling. What happens if sterling is in demand? The rate goes up.
All good fun, but where do we go from here? Being a naturally cautious person, I'm inclined to think that this is unlikely to be the start of the great sterling revival, but I would love to be proved wrong. I back sterling's ability to shoot itself in the foot at any opportunity, and there is every opportunity next week, the Merve's quarterly inflation report.
I hate to say it, but I think the markets will sell sterling, and we could be down towards 1.12 levels again soon.
A bientot, Rob
If you have any questions or comments on this, or any other subject, please don’t hesitate to contact me, Rob Hesketh:
Rob Hesketh and France Financial – Contact details Rob moved to France in 2003 after working for 30 years in International Banking in the City of London and Brussels. He joined the Spectrum IFA Group in 2005 and became registered and authorised by the French fiscal authorities in mid 2006. He is now a partner in Spectrum and looks after client relationships in the South West of France. The Spectrum IFA Group - TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009 « Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384) Numéro d'immatriculation 07 025 332 - www.orias.fr« Conseiller en investissements financiers, référencé sous le numéro F000184 par CIF-CGPC, association agréée par l’Autorité des Marchés Financiers » Get more details about Rob Hesketh, France Financial and Spectrum IFA Group