Spread Betting - Sterling/Dollar Market Remains Uncertain

Posted on | April 6, 2010 |

Fourth quarter UK economic performance revised upwards. US payrolls going up.

It was almost a one-way street for sterling, which made steady headway from $1.4950 to a peak of $1.53 in the Far East this morning.

Europe did not share that enthusiasm and sterling was heading down through $1.5150 as London got into its stride after the four-day weekend.

The Three Chancellors’ performance on British television at the beginning of last week was unexpectedly harmonious. They were in agreement about many aspects of the nation’s economic plight and how it might be sorted out.

It was vaguely reassuring to investors, suggesting as it did that a hung parliament might bring less policy wrangling than they had previously thought. The tone remained positive for sterling throughout the week even if it did not result in gains on every front.

The week’s UK economic evidence was not wholly convincing but was not without its good points.

While mortgage approvals remained at a low level, consumer credit expanded more quickly in February. Logically that ought to mean that people were becoming more adventurous in their spending habits but if they were, it seems not to have carried over into the following month: Gfk’s index of consumer confidence was a point lower in March at -15.

The purchasing managers’ index, a barometer of performance for - in this case - the manufacturing sector continued its improvement. It rose to 57.2, its highest level since the beginning of the recession.

Nationwide’s house price index resumed its upward progress after a wobble in February, clocking a 0.7% increase that leaves prices 9% higher than a year earlier. Perhaps the best news was an upward revision to Britain’s overall economic performance in the fourth quarter of last year. Gross domestic product grew by +0.4% rather than the +0.3% previously estimated. With no further revisions due for the Q4 data Britain can breathe a sigh of relief and put the recession behind her

The US dollar remains at the whim of investors who cannot make up their minds whether or not they like it. They are impressed when they see the US economy delivering - in many cases but not always - stronger results than the opposition.

At the same time they are discouraged when they hear of China, Japan and other sovereign wealth funds putting a lower proportion of their loot into US Treasury bonds. The ’safe-haven’ argument that provided a safety net for the US currency through the recession seems to be wearing out.

As the world returns to normality investors are looking more carefully at the very low interest rates that the Federal Reserve says will remain in place ‘for an extended period’.

Last week’s statistics were not a whole lot of help in squaring this circle.

Core personal spending was flat in February and house prices (according to the Case-Shiller index) were down again. On the other hand, consumer confidence (according to the Conference Board) jumped by six points to 52.5 and factory orders rose by a monthly 0.6%.

While Britain and the colonies took a day off on Friday the Bureau of Labor announced that non-farm payrolls went up by 162k in March. It was not as good as the +184k that the market had been expecting but a +22k revision to the previous month’s figure made up for the shortfall.

In the past five weeks sterling/dollar has changed direction a dozen times and gone nowhere; London’s opening today was very close to the level of 1 March. Buyers of the dollar should hedge up to 50% of what they will need. If the money is required in the near future they should consider covering the whole amount.

Weekly FX Review from www.moneycorp.com.

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