Moneycorp: Sterling Still Riding High
April 16th, 2009
- Industrial production in Britain falls by less than others.
- Four-day week and lack of data dampens activity.
- More of the same likely this week.
Sterling hesitated around Monday’s €1.10 opening level before moving up to €1.1150 on Tuesday. More hesitation took it back down to €1.10 on Thursday. Then it was up to €1.1150 again, where it opened in London this morning.
The pound’s daily movement last week seemed to owe more to chance than to any fundamental economic factors. Its net performance against the majors was almost random; virtually steady against the dollar, down by two yen and a cent and a half better against the euro.
The shortened week meant fewer economic data than usual. Britain’s balance of trade and the producer price index brought marginal improvements: the trade deficit narrowed slightly, as did the gap between manufacturers’ costs and factory gate prices. Nationwide’s index of consumer confidence hit a record (five-year) low at 41 in March, two points down from he previous month.
The figures that everyone chose to ignore were those for industrial production in February. In no way could the 1% monthly fall have been considered good, let alone the 12.5% annual decline. However, judged against the opposition, the numbers were less than embarrassing. Britain’s 1% monthly fall does not look so shoddy when compared to The United States’ -1.4%, Germany’s 2.9% and Japan’s 9.4% for the same 28 days.
Thursday’s interest rate decision was always going to be a non-event and that was how it turned out. A brief press release from the Bank of England noted that its 0.5% Bank rate would continue until (at least) May and that it would buy another $49 billion of gilts over the next two months.
After all the crowing (and crow pie, for that matter) it was instructive to see the final figures for fourth quarter GDP slippage in the Euro zone. It was not just educational, it was spooky. We had already seen the final revision to Britain’s Q4 GDP, which showed a contraction of 1.6% over the three months. In the States an annualised 6.3% contraction translated into a quarterly shrinkage of 1.6%. And what was the figure for Euroland? -1.6%. The global economy: It does what it says on the tin. Critics still allege that Britain’s recession will be deeper and longer than elsewhere. They could well turn out to be correct but, nine months into the slump, the evidence is still wanting.
This will be another slow week for UK and Euroland statistics. House prices and retail sales are the only offerings from Britain. The Euro zone highlight will be the data for industrial production in February. In the context of sterling/euro the figures to beat will clearly be -1% on the month and -12.5% for the year: It isn’t going to happen. Whether the Euro zone’s weaker performance will weigh directly on the euro to any appreciable extent is a different matter.
Sterling/euro is looking good, having cleared the traffic jam at €1.11, but its recent history is littered with false dawns. We must therefore stick to the tried-and-tested neutral approach: Buyers of the euro should continue to hedge their exposure, fixing a price for half of whatever they need and using a stop order to protect the balance against unexpected nightmares. Optimists – and there will be many – should under-hedge. On the other hand, if price certainty is essential there is no alternative but to cover the whole amount.
Story from Moneycorp
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