FX Weekly Comment

The week ended badly for the pound.  Having apparently stabilised in the mid 1.25's during the early part of the week, things fell apart a bit at the seams on Thursday and Friday, despite more bad news from the eurozone, so:

Pound looking good

Greece's future as part of the Euro is still very much up for grabs.  It is difficult to see how the vote on the 17th June will go.  To the 'not a chance, pal, were off' Syriza party or the right wing 'Ok, we give in, hit us again' right wing New Democracy party.  Either way, the Greeks are going to hurt.  I read an interesting view on this earlier this week in the FT:

Sir, Following the wealth of discussion and commentary generated by the ongoing Greek drama one could form the perception that Greeks got what they deserved for not paying their taxes.

It’s true that tax evasion is partly responsible for Greece’s current misfortunes, however it was in the country’s long-term interest given the circumstances: for the past 20 years, the Greek state has been mismanaged to a great extent, with inefficient processes and a lack of spending controls.

On top of that, the public sector has been further burdened by jobs created for the sole purpose of securing votes. In this environment of corrupt and unrestrained spending, public finances have been treated as a treasure to be looted rather than as an asset to be sustained. How do you stop this engine of wasteful spending if you’re not the one running it?

You stop funding it. Much like the shrewd investor who stops funding enterprises with bad prospects, Greeks stopped giving their money where it was not being put to good use. Their actions accelerated change: having run out of tax fuel and restricted by a fixed currency, the engine that is the Greek state is finally forced to optimise for efficiency.

So let’s not blame the Greeks for not paying their taxes; of all their financial decisions so far, this one has probably been the most sound.

Spain is looking to be submerging in more and more financial doodoo.  Bankia, the Spanish collective 'bad bank' set up to isolate all the bad bits of the Spanish banking sector, revised their 2011 figures from a €300m profit to a €2.98bn loss, and immediately followed that up with a request for a €19bn bail-out. Standard and Poor's, never ones to ignore a stable door just because the horse has bolted, immediately downgraded Bankia and four other Spanish lenders to junk status.

Not helping the situation is the margin that they are having to pay to renew their sovereign bonds.  This is now at a level of 6.5%, pretty near the 7% level deemed to be unsustainable. Greece, Portugal and the Rep. of Ireland were all at this level when they received international bail-outs, which is beginning to look more and more likely for Spain.  But of course that can't really happen, because Spain is just too big...

Pound hits the skids

So you'd think with all that going on in euroland, we'd have no problems maintaining 1.25 and beyond, but no, dark forces are apparently gathering.  The first boot to fly our way was aimed by Charlie Bean, another of Merv's merry men.  Mr Bean (stop smirking, this is serious) made it quite plain that more QE is very likely.  And we all know that a fair amount of sterling's strength has been based on the decreasing likelihood of the need for more QE.

The trailing boot was the result of the May PMI report, which showed that manufacturing performance in the United Kingdom contracted massively. April’s PMI was at 50.5, and projections were for a PMI of 49.7 in May. The true figure published at 45.9. Such a large and unexpected contraction had an immediate impact.  Companies are obviously cutting back on production and employment as new business declines due to rising uncertainty.   This is the second-steepest fall in the 20 year history of the index.  45.9 is the lowest PMI figure for over 3 years, and this has resulted in Sterling falling back to the high 1.23’s

So what now?

Big week for sterling next week.  We should find out whether or not QE is really back in.  If it is, sterling will be on the back foot.  How far back will depend on Greece and Spain.  I still have a hunch that we will go higher, but don't get greedy.  If you need Euros urgently, buy them now.

And on that note

This is the 130th, and last, weekly FX Comment blog.  As you may know, my 'real job' is looking after the financial arrangements of my Spectrum clients.  These are ever growing in number, and I need to make sure that I have enough time in the week to concentrate fully on their needs and requirements.  I will of course always have a great interest in how the pound fares against the Euro, and I may indeed feel moved to comment in future, but not on a regular basis.  I do hope you have enjoyed my weekly missives.

FX Wekly Comment

I'm tempted to say I've cracked this forecasting lark, but happily I've more sense than that.  Instead I'll savour the good times while they're here.  Last week I called for the pound to come again and consolidate above the 1.25 level.  A closing price this week of 1.2510 may not be completely convincing, but it's close enough for me.  Not that the pound had things all its own way, by any means, this week.

Recession confirmed - again

So the double dip really did happen after all.  Revised GDP data confirmed that the UK is officially in a double-dip recession with the latest figure showing a contraction of 0.3%. Retail sales figures were also much worse than expected revealing a 2.3% drop when only a -0.8% figure was expected.

Leading to more QE?

Christine Lagarde, head of the International Monetary Fund (IMF) stated that the UK needs to consider injecting more money into the economy and potentially cutting interest rates to stimulate growth.  Cutting interest rates from 0.5?  We'll be paying the banks to hold our money soon at that rate.  Thankfully however the minutes of the latest MPC meeting show that the vote was 8-1 against starting up the printing presses again just yet.  Not a very rosy picture though, all the same.

Noisy neighbour problems

With EU problems continuing apace, Merv and his mates are now making it quite clear that this will soon start to affect the UK. 50% of our exports go to the EU, so a strong pound is not helpful in Merv's eyes. Further EU problems will affect the UK economy, and will eventually increase the chances of more QE.  That would not be good for the pound.

And now the bad news, for the Euro that is

We've seen that sterling has its problems, but they pale into insignificance when you look at the eurozone mess.  And make no mistake, this is why the Euro will remain weak, and in my view sterling will make more ground:

Greece

Well it all comes down to Greece, doesn't it?  Many people are sympathetic, taking the view that Greek politicians over the years have created the mess that they are currently in. I tend to share that view.  Less sympathetically Christine Lagarde said on Friday , and I paraphrase 'Pull yourselves together and start paying your taxes'. 

France

As at the end of December 201, total French bank lending to Greece was €36 billion, higher than Germany's €10.5 billion, according to a Bank for International Settlements report.  "The banks are doing contingency planning concerning a Greek exit, but you can understand why they wouldn't say so publicly," a consultant to French banks said.  An investment banker who advises European banks said French lenders had all stepped up their contingency preparations for a Greek pull-out at regulators' request over the past two weeks.

Spain

Spain's wealthiest autonomous region, Catalonia, needs financing help from the central government because it is running out of options for refinancing debt this year, according to Catalan President Artur Mas on Friday.
"We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills," Mas told a group of reporters from foreign media.  A somewhat economically challenged standpoint in my view. 
The debt burden of Spain's 17 highly devolved regions, and rising bad loans at the country's banks, are the cause of investor concerns Spain will need an international bailout.  Catalonia, which represents one fifth of the Spanish economy, has more than 13 billion euros in debt to refinance this year, as well as its deficit.
On the banking front, Spain's fourth largest bank, Bankia (such imagination!), was invited this week to restate its 2011 balance sheet after it emerged that it needs a €15bn bailout from the state.  Not surprisingly, it's shares have been suspended.

What does all this mean?
Tin hat time is what it means.  Bye bye Greece, probably with effect from the 1st Jan 2013.  Euro weakness in spades.  1.30on the cards as a short to medium term target.

FX Weekly Comment

Champagne time at last.  There are good reasons why sterling has fallen back to 1.2430 today, but the undeniable fact is that during the week we finally broke through the 1.25 barrier, and at one point reached 1.2578.  I was sorely tempted to email one client who told me a few years ago that sterling would never again see the high side of 1.10, but I decided that she probably wouldn't appreciate it.

Please excuse me while I indulge myself by printing an extract from the very first FX Weekly comment article, back in September 2009 for the Guide2 Group:

'At present one pound equals 1.1468 Euros, or it did on Friday evening.  My personal view at present is that sterling is undervalued below 1.2500 Euros.  I also believe that when large movements take place in the markets they are usually overdone.  Sterling’s fall from 1.5200 to 1.0250 was an extreme example of this, a knee-jerk reaction to the sub-prime induced credit crunch.  I think there will be setbacks, but we will edge our way back to the mid 1.20’s by next spring.' 

OK, so what's a couple of years between friends?  Here's what happened this week.

Euro implosion - fuse lit?

Greece is once again the word.  There is no mechanism in place for any currency to leave the Euro.  Jacques Delors would turn in his grave at the mere thought of it.  Yet here we are, with the chances of Greece having to leave increasing day by day.  That is because there is currently no elected Greek government following the recent elections.  The Greek electorate cannot stand any more austerity.  To them, and I sympathise, the German led demands on their basic living standards are too extreme, and it comes as no surprise that they will not vote for any parties that support even more austerity measures.  None of the parties could even muster up a cobbled coalition to agree on a political course.  So, more elections in June, with the likelihood that an anti austerity movement will take power.  No more austerity; no more money.  There's the door.

When Greece goes, who will criticise the Spanish for looking on and taking a very dim view of their austerity programme?  If Spain goes, then Portugal, then Italy?  It will be a painful process for anyone leaving he Euro.  The old currency will be reinstated, and the markets will very quickly devalue that currency by a massive percentage.  It is however the only way forward.  A Greek economy with a devalued Drachma would soon find itself in a very competitive position with regards to the rest of Europe, and growth would then begin.  No one should doubt how painful the transition would be though, and some think that austerity might be the better option.

It's Merv time...

Merv and his mates are not happy bunnies when sterling strengthens against the Euro.  They would much rather see a weaker pound, for much the same reasons as a devalued Drachma would eventually help out Greece.  This week was all a bit too much for him, and by Thursday he couldn't take it anymore, and it was time to put the boot in.  Merv warned that any hopes the UK economy could avoid being affected were by the Euro mess were "wholly unrealistic".  He also slashed the UK growth forecast this year to 0.8% from 1.2%, saying the eurozone "storm" remains the main threat to UK recovery. The eurozone was "tearing itself apart" and the UK would not be "unscathed", said melancholy Merv.  He told a news conference that the eurozone posed the greatest threat to the UK recovery since Accrington Stanley last won the league (I added that bit, sorry), and there was a "risk of a storm heading our way from the continent"."We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country's history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.

You can see that he's a bit out of sorts about all of this, can't you?  After all that, just for good measure, he deliberately tried to put the wind up the markets by inferring that more QE was possible after all.

The result?

The pound withdrew to the low 1.24's.  Big deal.  The pound will come again. and I really do believe that we will consolidate above 1.25 during the next week or so.

FX Weekly Comment

So the champagne stays on ice, for now.  The pound very nearly reached my long awaited level of 1.25 when it touched 1.2492 at one stage on Thursday.  I'm getting a bit cocky now, and I think we might see the twin towers at 1.28.  That is 1.28 Euros to the pound and 1.28 dollars to the Euro.  There's a lot going on at the moment, and here is some of it:

 

Exit stage right

 

Hollande didn't win he presidential election, Sarko lost it.  Predictable really, for a leader who presided over the worst economic meltdown for decades.  A pity really; he was once seen as the French Thatcher, someone who would have the political strength to take on the unions.  Unfortunately he soon showed his true colours and his own interests outweighed the needs of France. 

The euro suffered heavy losses this week as fears surfaced that election results may have a marked effect on the makeup of the eurozone.  Fears that Greece could soon leave the euro and fears over the state of the Spanish economy gripped the market. The Greek elections raised doubts that the Greece would stay in the euro much longer as anti-austerity parties took over a great deal of power from the two main parties. To date, no coalition has been formed.  Another election in June is looking ever more likely which would mean that a coalition may be formed between parties who want to tear up the current austerity deal.  Italy also moved substantially to the left, potentially threatening their will to follow the austerity line.  With a series of countries rejecting austerity, why should counties such as Spain, Portugal and Ireland feel obliged to toe the line?  Watch out Euro.

 

Back on the farm

Merv and the team decided to keep the printing presses in mothballs this week, and also to leave the base rate unchanged.   A few pundits had believed that they would announce more QE.  Merv decided against any statement, which some view as controversial with the economy contracting and the MPC not coming up with any alternative therapy,  especially when fiscal tightening is being used at the same time.  With unemployment on the rise and private spending still at depressed levels, the BoE might be criticised for not doing enough to revive the economy.  Inflation is the coloured gentleman in the woodpile here, with fears that persistent inflation will lift wage  expectations,  hurting UK competitiveness. Inflation in March rose to 3.5% and price growth has not come down as rapidly as expected.  Household real disposable income shrank for the third year running, and without a substantial improvement here the recovery will be sluggish at best.   The pound likes this lack of QE though, and here we are at the highest level since the end of 2008. 

Other UK figures were a bit confusing.  UK industrial production fell by 0.3% from February to March, more than the market expected.   Manufacturing output however grew by 0.9%, well ahead of the 0.4% gain foreseen by analysts.  So much for statistics. 

F/X Weekly Comment

So far, so good.  Sterling seems to be establishing a base at these levels, ending the week up 70 points at 1.2330.  Not all the news was good for sterling, but as I've said a couple of times recently, the pound seems to be able to shrug off the bad news and thrive on the good. Long may that continue...

Dodgy stats for the pound

Weak UK house price figures from the latest Halifax survey barely affected the pound today. House prices apparently fell by 2.4% last month, as opposed to a rise of 2.2% the month before.  The market chose instead to focus on figures showing that sales of new cars in the UK showed an annualised increase of 3.3% last month, provided a chink of hope for sustained recovery.  The latest PMI survey from the service sector continues to show expansion at 53.3 although this was under the expected 54.4 level.

Even dodgier stats for Europe

The release of the Europe-wide Composite PMI survey set alarm sirens wailing for the future prospects for the Euro. The data revealed that the eurozone’s private sector is contracting even  faster  than had previously been thought. This took the rate to 1.2328 by the middle part of today’s trading session, and the single currency isn't expected to bounce back in the near future.  There is clear  evidence now that the eurozone’s sovereign debt problems are starting to hurt the continental European economy. A whole raft of disappointing European data releases this week reinforced this sentiment, as firstly German unemployment figures and then the PMI survey came out significantly worse than had been expected.   The worst was yet to come, however, with the release of March’s eurozone unemployment figures. These showed that unemployment in the region had rocketed to 10.9%, its highest level since records began. It appears that widespread government spending cuts and tax hikes in an attempt to balance the finances of debt-ridden eurozone states are causing European consumers to stop spending, hitting Europe’s economy hard.

Sarko Sortie

I expect that by the time you read this our charming diminutive president may now be free to 'pursue other interests'.  I do hope so anyway.  What will be interesting will be how M. Hollande manages to merge his socialist beliefs with capitalist reality.  This could be interesting, and another ace up sterling's sleeve.

What now?

Same as last week.  Still onwards and upwards for me.  1.25 here we come.  The trick here will be to work out when to press the 'buy' button, and avoid being too greedy. 

Another good week for the ten bob note.  Sterling seems on the face of it to be cruising at the moment, ending the week at a comfortable 1.2260, but under the surface things are a little more frantic...



Double Dip Recession


We've been hearing about this for months, and here we are.  It's finally arrived.  GDP figures this week show a 0.2% shrinkage in the first three months of 2012.  The economy shrank by 0.3% in the fourth quarter of 2011, and the technical definition of a recession is defined as two consecutive quarters of contraction.  So there we are, the dreaded Double-Dip.  Well, maybe, and maybe not.  This week’s GDP figure is only an early estimate, and is subject to at least two further revisions in the coming months.  I think that there is enough evidence from other data to suspect that the DD might not actually have happened at all.

This didn't however stop Martin Weale beating a drum again for more QE.  If you remember, he and Adam Posen were the two of Merv's crew calling for the printing presses to be cranked up.  Then last month Posen decided enough was enough.  Weale obviously hasn't given up yet though.


Hollande and France

This could get a little confusing.  The Dutch government collapsed this week, unable to reach agreement on an austerity package.  At the same time Francois Hollande beat Sarko in the first round of the Presidential election.  This does not mean that the French president is going to be Dutch, but it does mean that the mighty Euro is having to brush off some fairly considerable blows, and is showing signs of stress.  M. Hollande, after all, is no great fan of austerity packages and tax hikes.  Think of it another way.  The names Hollande and Merkel don't merge together in any way as well as Merkozy does.



S&P Again

This time downgrading Spain’s credit rating by two levels, to BBB+ with a negative outlook, increasing worries that the inherent debt crisis engulfing much of Europe is spreading at a faster rate. The Euro drifted weaker through Thursday, as reports from  Italy showed a bigger decline in business confidence, which sank to the lowest level in over two years. Business confidence in the Euro-zone as a whole also fell sharply in April.


What now?

Still onwards and upwards for me.  1.25 here we come.  The trick here will be to work out when to press the 'buy' button, and avoid being too greedy.

F/X Weekly Comment

It's so much more fun being wrong on the way up than on the way down. Last week I hoped for continued consolidation at the 1.21 level, and lo and behold the pound surges through 1.22 to finish the week at 1.2230. And a very interesting week it was.

S&P reaffirm UK AAA rating
Let's get the boring bit out of the way. Who cares what credit rating agencies think anyway?

A poser from Posen
Adam Posen is of course one of Merv's current clutch of merry men. For many months now he has been on record calling for more action from the money printing dep't of the BoE (QE). Suddenly this week that has changed, and with the minutes of the last meeting released this week, he has dropped this call. The minutes indicate that the UK’s current high inflation may now be at greater risk of lasting into the medium term. This decreases the chance of further QE, and if confirmed helps remove a drag on sterling. Since the release Posen has said that in his view the economy is likely to be in a better position than data trends suggest. Markets will watch next week's Q1 GDP data to see if he is right.

UK employment
UK unemployment has registered its first fall since last spring, according to figures released the Office of National Statistics on Thursday. It fell by 35,000 to 2.65 million over the 3 months since December, a much better figure than the markets had forecast. Sterling reacted very strongly to this, and within a very short period of time the BoE minutes were released, giving another boost.

Sinking PIIGs
While sterling is still riding the crest of its wave, those irritating Euro peripheral debt problems just won't go away. Spain, Portugal and Italy are jostling for position at the front of the queue at the moment. Christine Lagarde's comment that Spain is not in need of the bailout fund's support is being taken with a very large pinch of salt. It undoubtedly remains vulnerable to the debt situation however, and markets will be watching for any developments at this weekend’s IMF/World Bank/ G20 meetings.

Mysteriously Thursday's Spanish debt auction saw a strong uptake for government bonds. The Spanish treasury was looking to raise €2.5bn of its gilts, but managed to sell some €2.54bn worth of debt at significantly reduced yields. The rate of interest paid by Spain on its benchmark 10-year bonds dropped markedly from 5.743% to 5.403%, suggesting on the face of it that panic levels regarding the country’s debt situation are receding. There is however a strong suspicion that this has been engineered by Brussels, with non PIIG buying of the bonds in an attempt to ease the pressure.

Italy joined in the fun and released worrying 2012 growth forecast figures which predicted that domestic economic activity is set to shrink by 1.2% this year. Previous estimates were for fall to -0.4% this year, so the announcement took the market by surprise. Mario Monti also revealed that as a consequence of slower growth, Italy won't be able to balance its budget next year, as previously promised. This suggests that the Italian economy is struggling to cope with the austerity measures have been intrduced since Silvio Berlusconi was shown the door. Back to the IMF, and there are signs that Christine Lagarde is having real problems raising more cash for the bailout fund. With all that is in the pipeline, this is no time to be running out of money.

What now?
Onwards and upwards. 1.25 here we come. Not quite sure when though....

F/X weekly comment

Last week my modest hope was that sterling would be able to consolidate in the 1.21 range, and lo and behold, here we are a week later at 1.2120. Not only did we manage to stay in range on the week, we also managed to reach an 18 month high 1.2160 on Wednesday. The only tarnish was that we also sat 1.2080 during the week, but then it's not a perfect world, is it? Newsworthy this week:


Crest of a wave

With hopefully more, bigger waves to follow. I think sentiment has changed. I mentioned recently that whatever bad news comes through for sterling at the moment, the market seems to cock a deaf ear and ignore it. This week it was some pretty awful UK trade deficit figures for in February; £8.8bn instead of the predicted £7.7bn. The pound went up on the news! Eurozone industrial production did better than expected in February, rising by 0.5%, but the market bought sterling again. How refreshing.

Talking of bigger waves, we are now within approximately 250 points of the highest sterling/Euro level for nearly four years. Heady stuff indeed. The problem here is that as rates get higher, private individuals, companies and speculators all tend to start buying the Euro. fair enough, I know, but think what's on the other half of that trade They are selling sterling. A 'bought' currency gets stronger, a 'sold' currency gets weaker. Not exactly what we're looking for.

Another concern that I have is that Merv and the boys are firmly of the opinion that a weak pound will help the UK in the long run by making exports more affordable overseas. They are quite capable of spiking sterling's guns when we least expect it.


Remember George Soros?

He has a bit of history in foreign exchange markets, to say the least. He's never gone away since his heydays in the 80s and 90s, and every now and then he speaks out and markets listen. He talked about a corporate reluctance to leave their funds in euro-denominated assets, then went on to say that Germany is attempting to impose a near-impossible task on the Eurozone in enforcing unworkable austerity measures on the region’s peripheral states. He then waded in with an assertion that the single currency, in its current state, is ‘broken’ and needs to be mended. Well I think we all knew that already. The problem is that instead of strong medicine or surgery, sticking plasters seem to be the chosen tool.



Onwards and upwards?

I'd like to think so, but I'm a bit wary . If sentiment remains intact and bad UK figures continue to be ignored, then yes. If the figures are good, yes. But there are two ways to view a consolidation in the 1.21s. It could be a new 'base camp' from which to climb further, or it could be a plateau, where the ascent could run out of steam.

We need to remember that the UK is exposed to the EU debt crisis, partly because we need them as customers, and partly due to the fact our banks are up to their necks in that same debt. This scenario will keep the Euro weak, but it may also start to weigh heavily on the pound

I'm going to keep my optimistic hat on this week, but for me that means further consolidation of the 1.21 level. let's get used to being here for a while.

F/X weekly comment

Now this is more like it! I must confess to feeling a little bit pleased with myself when the pound finally went through the forecast 1.2125 on Thursday and at one point traded at 1.2140. After all, it doesn't happen that often, does it? Friday of course was a bit of a non-event, as the UK was on holiday, but most of the rest of the financial world traded on and the Euro could have moved sharply in our absence, but it didn't. We ended the week at 1.2120, close enough to last week's target to keep me happy. Here's how the week panned out.


UK on the up

The Halifax House price index rose 2.2% in March, following the drop by 0.4% in February. The Services PMI rose to 55.3 in March compared to 53.8 in February. A decrease to 53.5 was widely expected in the market. Other reports earlier this week were also positive, giving hope that Merv and his crew will keep their powder dry on more QE in May. These figures were indeed very welcome, and they also highlighted a contrast with a struggling euro zone economy.


Euro downer

The release of more disappointing economic data from Germany, this time in the form of February’s Industrial Production figures, contributed to a rocky week for the Euro. This combined with persistent fears about the spiralling yields on several eurozone states’ bonds. There was no change to EU interest rates in this week's ECB meeting. This was expected, but what wasn't were the comments by the ECB president Mario Draghi. He said the euro zone economic outlook is subject to downside risks relating to the debt crisis and commodity prices. Whilst this may seem obvious, the fact that a person in his position says it speaks far greater volumes.

A disappointing auction of Spanish government bonds also weighed on the Euro, as worries grew about Spain's high debt levels and weak economy. Europe's economic prospects look very poor indeed, and debt problems in Spain, Portugal and Italy mean that the ECB will have to dig even deeper to support banks and its weaker economies. Greece almost pales into insignificance.


A new dawn, or did someone turn a light on by mistake?

I'm going to keep my optimistic hat on this week. As I said last week, things are starting to feel different. It's a bit like watching the Baggies 2-0 up with ten minutes to go, and cruising. Very comfortable, very unusual, and you know anything can happen! I'd really like to see a consolidation in the 1.21 range next week. Not too much to ask for, is it?

F/X weekly comment

Well this is about as exciting as watching paint dry. Here we are at the end of this week at 1.2000, a mere 40 points away from where we finished last week, and the week before, and exactly the same as the week before that. I looked at one website today that was clearly trying to drum up some interest for its foreign exchange business by showing a choppy chart for sterling Euro over the week. It was only by looking at the axes that you could see that the high was 1.2008 and the low 1.1975. When I were but a lad you'd expect to see that sort of movement while you had a cup of coffee and your first fag of the day. Remember smoking in offices? You had to join in or it would make you feel ill. Not that we had Euros in those days though. Real currencies for me, deutschmarks and francs; lire and pesetas; escudos and drachma.

There was however quite a bit of action in the background this week, even if it didn't filter through into market movement:


Poor UK data

No, surely not? Aren't we supposed to be bursting out of recession into the blossoming spring of recovery? Not according to GfK NOP (whoever they may be), who announced that we consumers suffered a lapse in confidence in March as we became more worried about the financial outlook and the economy in general. The index decreased two points to -31 from -29 in February, according to the survey. It is the lowest since reading since December (not exactly a long timescale there) and contradicted expectations of a small improvement. On a longer timescale, it is three points lower than a year ago, which may well help to wipe any smug grins off faces at the BoE.
We also heard that mortgage approvals fell during the month, and money supply for February registered its biggest monthly fall ever (impressive huh?). This was followed by poor figures in the services sector and to round it all off UK house prices had their sharpest drop in over 2 years.
Well not exactly rounding it all off, because the OECD then stuck the boot in when they calculated that the UK economy shrank in the first three months of the year, which means, dear friends, that we are back into a recession. Let's hope they're wrong on that one.
So how the hell did sterling shrug all this off and end the week 30 points higher than last week? Surely we should be hanging on to our parachutes for dear life as we plummet down towards parity?

Greece is the word

Standard & Poors commented that Stavros and friends may need yet further fiscal re-structuring in order to eventually get itself out of the mire. The Greek Tragedy has dropped out of the headlines over the past couple of weeks, thanks to the confirmation that it would be receiving the €130bn second bail-out. Strange that it should take so long for anyone to draw this obvious conclusion, but who am I to comment?

But...

Could it have been the Greek appetizer for a Spanish main course? Spain is in deep trouble. There are 5.4 million unemployed people in Spain, 23.3% of the workforce. Youth unemployment is at almost 50%. The new government forecasts another 600,000 unemployed Spaniards by the end of 2012. 430,000 Spanish families are to be evicted from their homes by 2016 if Spanish banks and courts keep up the current rate of mortgage foreclosures. The latest austerity budget is cutting nearly €30bn rom public spending this year alone. The general strike on Thursday is not going to create more jobs for the millions of unemployed Spaniards who are deeply despondent about the inability of modern Spain’s economic and political system to offer them and their children a proper future.



What now?


For now I'll stick again to last week's forecast of 1.2125. I'm beginning to get a sense that the balance is swinging against the Euro. It used to be that whatever was good in the UK couldn't manage to boost the pound. Now it seems that continuing bad news seems unable to damage it. Blind faith it might be, but it's worth a go!.