Posted on 14 February 2011
Sterling still at the whim of opinion polls
As suspected on Friday, the promise by the Chief Secretary to the Treasury – that there would be no post-election tax increases – did not even survive the weekend. The Chancellor of the Exchequer told Sky News that he could not guarantee taxes would not go up; a necessary comment in the light of his commitment not to impose any new spending cuts ahead of the election. Separately (or was it to get red-top readers onside?), Schools Secretary Ed Balls said he wants to lower from £150k to £100k the threshold for the new 50% income tax rate.
Neither of those comments came in time to influence the market on Friday but that did not prevent sterling from having another broadly successful day. Not did a speech by Spencer Dale, an MPC member and the Bank of England’s chief economist, do any lasting damage. In a speech about ‘Quantitative easing one year on’ he repeated the Bank’s mantra that its two available instruments of policy, interest rates and QE, ‘can be used at any time, in any order.’ Investors did not interpret his comments as a promise to print more money. Of direct help to sterling was an opinion poll by Angus Reid Public Opinion showing the Conservatives with 39% of the vote and Labour 13 points behind at 26%. Sceptics noted that Angus has a tendency to show lower support for Labour than other polls but the pound still reacted positively. It is a surprise, then, that there has been no negative reaction (yet) to a couple of polls published yesterday. One showed a 37-33 lead for the Tories while the other made it 38-31.
Today has kicked off with an apparently uncontroversial Quarterly Report from the Bank of England and a +0.1% increase in Rightmove’s index of UK house asking prices. Consumer confidence in Japan improved in February and Tokyo condominium sales were +10.7% up from a year earlier. Swiss producer and import prices and Euroland employment change are the only figures from Europe. Canadian motor vehicle sales will not do any damage but the US data may have more impact with the New York Fed’s manufacturing index, TIC long-term capital flows, industrial production and the NAHB housing market index.
For the US dollar the challenge will be to avoid falling through the technical support levels that litter its path. For the euro it will be either to persuade investors that the bailout package for Greece will be eventually agreed by Germany and France or that it will not be needed after all. Sterling’s obstacle will be those two neutral opinion polls and, perhaps, the detail within the Bank’s Quarterly Report.
15 March 2010 Moneycorp report