• Weak data fail to impair the pound
  • Aussie suffers from greater caution among investors and continued concern about the Queensland flooding
From last Monday's low the pound managed to add four cents by Tuesday night and picked up a further cent on Wednesday and over the weekend.

In the good news/bad news trade-off sterling was theoretically the loser last week. The good news was Tuesday's manufacturing sector purchasing managers' index (PMI). It went up from 57.3 to 58.3, its highest level since 1994. The list of bad news was longer. PMIs for the construction and services sectors both fell, services to 49.7 and construction to 49.1. That they both went below 50 is significant: Services and construction business is no longer growing, it is shrinking. The number of mortgage approvals was slightly higher in November but the 700 increase from 47,300 to 48,000 engendered more pity than admiration.

The Halifax house price index, which came out as London opened this Monday morning, was an even harsher comment on the residential property market. It showed prices falling by -1.3% in December and down by -3.4% on the year. Like the Nationwide a week earlier, the Halifax sought to put a less negative spin on the figures by referring to the quarterly rate of change; "Prices in the final three months of 2010 were 0.9% lower than in the previous quarter. This rate of decline is significantly less than the quarterly falls of 5-6% during the second half of 2008." The Halifax was also optimistic that "Interest rates are likely to remain very low for some time. This will continue to support a favourable affordability position for those entering the market and limit financial pressure on existing homeowners to sell." They studiously avoided the subject of what might happen to prices when interest rates do eventually rise, as they could well do this year.

A thin week for Australian statistics saw the AiG performance of manufacturing index (PMI) fall by more than a point to 46.3, new home sales fall by -0.2% and building permits suffering a -9.9% drop. None of the figures was remotely helpful to the Australian dollar but they were not its main obstacle. Investors were more concerned by the negative economic effects of the Queensland flooding and the possible insolvency of various southern European governments. The new year downturn in investor risk-appetite allowed both the Aussie and the Kiwi dollars to fall back against the US dollar and the pound.

The success of the pound last week was principally the result of investors' disaffection with the euro and their consequent caution about global growth and commodity currencies. Sterling got away with some dubious economic data because the UK government is not seen to be at risk of going bust. It might not get away with the same stunt this week if the UK trade or industrial production figures fail to pass muster. The main event for the Australian dollar will be Thursday's employment numbers for December, which are unlikely to be as strong as 54,600 new jobs recorded in November.