Weekly F/X comment

Things are improving. No with sterling of course, but with my forecasting record. We did indeed dip into the 1.12s during the week, but in the end managed to claw back to just over 1.13 after a bit of a wobble from the Euro.

What's a Grecian Urn?
Not enough to pay his debts, obviously. (sorry Eric) Greek borrowing costs peaked at new record levels yesterday. Greek and German finance ministers have discussed the possibility that Greece may need more time to attract investors and debt restructuring is on the cards. There is a theory that Greece’s debt levels are unsustainable, if they are then ‘further measures’ could be taken.

Paddypowerless
At the moment the euro is still strong from the possibility of another interest rate hike, but has weakened since the sterling lows during the week. This weakness has come partly from noise from Irish Government about ‘structured default’, and partly to the contents of the ECB report which showed that an interest rate hike was warranted, but warned of the higher risk of price stability. On top of that Moody’s downgraded Ireland’s sovereign rating to just above junk.
The term 'structured default', in case you couldn't guess, means welching on your debt. Doing a 'runner' in effect. The Irish may have no choice, as may the Greeks. The only reason we're not talking about Portugal doing it is that they haven't worked out what their debt is yet.

Sterling stuff
The UK Consumer Price Index figures released this week showed a fall in inflation for the first time in 8 months. A fall in food and soft drink prices was the main cause. Lower inflation means that initial expectations of a rate hike in the UK have now been pushed back even further, and November is now being touted as a likely date. This news weakened sterling and at one point it reached one year low against the Euro.
A survey also showed the biggest drop in retail sales in nearly 6 years, highlighting the problems facing the UK as the government's tough austerity measures hit home.
So yet again we have the situation where there is no discernible currency strength to talk about, only relative strength borne of real weaknesses in both camps. Somehow though I think that the Euro's long term problems are greater than sterling's. that allows me to hold on to my belief that we will eventually see rates settle in the mid 20s, but maybe not for some considerable time yet. Short term movement is, as I know only too well, very difficult to predict, but I can see sterling weakening more next week, and I think we will be back in the 1.12 range.