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Foreign Exchange And International Payments Being Watched

The government is going to crack down on cowboy “payday” lenders. These firms offer money to desperate people at unusually high rates of interest; APR’s of 2000% to 4000% are typical. After an exhaustive year-long investigation the Office of Fair Trading has decided the business needs stiffer controls. Astronomical interest rates will still be allowed but companies will have to tone down their collection methods. Lenders will no longer be permitted to sell the first-born of persistent debtors into slavery, whatever the small print on the loan document says, and will only be allowed to break defaulters’ legs when they are more than a month behind on their repayments.

Good though the news was for the disadvantaged, it did little to help the pound on Tuesday in Moneycorp foreign exchange. Nor did sterling react positively to the day’s two other positive indicators; the uptick in retail sales and the stronger-than-expected services sector purchasing manages’ index (PMI). Reaction to the BRC retail sales monitor can often be muted because it is published while the London market is fast asleep but the PMI could have been expected to cause more of a stir when it came in at 51.8, a quarter of a point higher on the month and nearly a point better than forecast. Whilst it did elicit a knee-jerk buying reaction, worth half a cent or so against the US dollar and the euro, there was no follow-through and by early afternoon sterling was looking soggy again in international payments shown by moneycorp.

That is not to say the pound had a bad day. It lost ground to the NZ and Australian dollars, the northern Scandinavians and the South African rand but none of those could be said to be a key indicator of sterling strength or weakness. Anyway, the losses were minor, equivalent to half a euro cent or less. Sterling was steady against the euro, the Swiss franc and the Canadian dollar and it made slight progress against the US dollar and the Japanese yen.

As was the case on Monday, the positive progress of the antipodeans had more to do with an improved appetite for risk among investors than it did with any great love for the Australian and New Zealand dollars. An on-target 0.6% quarterly expansion of Australia’s economy in Q4 will have helped, even if there was no visible currency reaction.

Other than Euroland retail sales, whose -1.3% decline in January was less than expected; Tuesday’s ecostats consisted mainly of services PMIs. The United States topped the podium at 56.0 with Germany in second place at 54.7 and Britain’s 51.8 taking bronze. Elsewhere in Euroland the reading were all sub-50, with France struggling in the rear at 43.6.

This morning’s agenda opened with the Halifax house price index, which rose by a useful 0.5% in February. There was no instant reaction by the pound but the figure will not do it any harm. Due later are euro zone fourth quarter gross domestic product and an appearance by the Bank of England governor at the Parliamentary Commission on Banking Standards. Even Sir Mervyn would be pushed to smuggle a weak sterling message into that topic. The afternoon is slightly busier: from Canada comes the latest monetary policy decision and the Ivey PMI, from America the ADP employment change figure, factory orders and, later, the Fed’s Beige Book survey of economic activity. Tonight brings the AiG construction PMI and the Australian trade figures.

Investors spent Monday and Tuesday groping for inspiration. The lack of direction could persist until tomorrow afternoon when the Bank of England and the European Central Bank reveal their latest visions of monetary policy.

Peter Christopher

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