Five years ago the pound took a bit of a knock ahead of the UK general election because the opinion polls pointed to a hung parliament.
That prospect did not fill investors with delight and they lightened their holdings of sterling. It looks very much as though a similar process is playing out again now, for exactly the same reason.
It did not lead to a dreadful week for the pound, which was roughly in the middle of the field next to the euro, but the mostly positive UK economic data would normally have given it a better result. Consumer confidence rose in March to its best level in nearly eight years; economic growth in the fourth quarter of 2014 was upwardly revised to 0.6 per cent; and purchasing managers' index readings for the manufacturing and services sectors both exceeded expectations.
There were also signs of economic improvement across the Channel, especially in Spain. The brighter picture in Euroland helped to subdue the voices of those who still look for the euro to fall to parity with the US dollar and they were subdued even more by Friday's US employment data.
Non-farm payrolls in the States increased by only 126,000 in March, little more than half the expected number and the weakest result in 15 months.
At the back of the field, the Australian dollar continued to suffer from the problems faced by the big mining companies. Falling demand, especially from China, has crushed their revenues, with the price of iron ore falling from US$115 to $50 a tonne in just one year. The Aussie would have had an even worse result had it not been for the Reserve Bank of Australia, which left its benchmark interest rate unchanged when everyone had been expecting a cut.
No comments yet