The UK chancellor delivered his budget speech on Wednesday and the British pound was the joint top-performing currency, strengthening by an average of 0.3%. However, there was only a loose connection between the two. Most of the measures contained in Rishi Sunak’s budget had been pre-announced, so the support for sterling owed more to relief than to joy.
It was not a day of big movements. Sterling led the way jointly with the US dollar, 0.5% ahead of the Swedish krona and Swiss franc at the rear. In the middle the euro, the Japanese yen and the Canadian and Australian dollars were practically unchanged against one another.
What could have helped the pound - though again there was no sign of cause-and-effect - was the slightly brighter assessment from the Office for Budget Responsibility, the government’s independent economic forecaster and analyst. The OBR upgraded its predictions for growth and jobs, lowering its estimate of peak unemployment from 7.5% to 6.5% at the end of this year. It hopes the combination of budget stimulus and vaccination will bring “a swifter and more sustained economic recovery, albeit from a more challenging starting point than we forecast in November”.
As expected, the services sector purchasing managers’ indices from Europe were a bit sketchy, held back by Covid restrictions and lockdowns. The composite measures from Italy and Germany were positive at 51.4 and 51.1, by means of their decent manufacturing PMIs.
Britain’s services PMI was close to forecast at 49.5, in the sub-50 contraction zone for a fourth consecutive month. The report noted that “optimism continues to rise in response to vaccine roll out” and “there were some pockets of growth in technology and business services”. The best numbers, predictably, came from the United States with Markit at 59.8 and ISM at 55.3. Markit’s reading was the strongest since 2014.
In any other business, ADP’s US employment change report saw private sector employment increasing by 117k jobs in February, 60k fewer than expected. The number is seen as a pointer to the US employment report, which comes out on Friday. Australian data released overnight showed a widening of the trade surplus, as exports and imports diverged, and a 0.5% monthly increase in retail sales.
In the coming two days the lion's share of economic statistics and comment comes from the United States. The employment data cover jobless claims today and nonfarm payrolls tomorrow. This afternoon the Federal Reserve Chairman will take part in a “Conversation on the US economy”.
In Europe this morning the European Central Bank will publish its Economic (née Monthly) bulletin and Eurostat will print its figures for retail sales and unemployment in January. After lunch, weekly new US jobless claims are expected to number 750k and US factory orders are forecast to show a 2.1% monthly increase. Australia’s AiG performance of services index comes out tonight.
Another thin day for European ecostats on Friday brings German factory orders, France’s balance of trade, Italian retail sales and UK house prices (Halifax). Analysts expect the US employment report to show an increase of 180k in nonfarm payrolls and a 6.3% rate of unemployment. Canada’s trade figures and the Ivey purchasing managers’ index also come out tomorrow afternoon.