Fresh Produce Journal
The "volatility" of a financial instrument is, as the word suggests, a measure of how much its price changes over time. High volatility occurs at times of euphoria or panic. Low volatility generally means that nothing is happening. And that is the case at the moment. The volatilities of GBP/USD and GBP/EUR are at their lowest in five years. Because nothing is happening. The pound is unchanged against the euro and the dollar from its levels five months ago.
That is not to say there is no movement at all. Sterling has just had a pretty good week, as have the US dollar, the Japanese yen and the antipodean dollars. The pound strengthened by nearly two euro cents.
Sterling's break came on Wednesday morning when Euroland published a slew of purchasing managers' index (PMI) and confidence data. All the numbers fell short of forecast and every one of the PMI figures was below 50, the point on the 0-100 scale that separates growth from contraction. The news reduced investors' appetite for the euro and they turned to the pound instead.
As expected, Thursday's figures for UK gross domestic product showed the economy growing in the third quarter. For technical reasons (altered bank holidays and the accounting for the Olympic Games) the figure was bound to have been positive but the preliminary 1.0% figure was much better than the consensus forecast of 0.6%. Sterling flew. Emotions calmed down on Friday and the pound had to give something back but it looked comfortable heading into the weekend.
There are no big-ticket UK ecostats this week. The highlights will be Thursday's round of manufacturing PMIs and Friday's US payrolls number. For the euro the most important event will be the news of what the EU/IMF/ECB "troika" intends to do about Greece's €30bn cash shortfall.