F/X weekly comment

I'm going to upset the applecart well and truly this week, and return to a 'bullish' stance on sterling. For the happily uninitiated, this means I think the pound is going to go up. The bad news is that this probably means it will go down, but it just seems to me that most of the merde flying around in the currency markets at the moment seems to be sticking to the Euro.

Sweet 16

For a few hours on Thursday we actually saw sterling trading in the 1.16's for the first time since the 14th March. There is a lot of Far-East interest in buying the Euro when it's cheap at the moment, and that had the effect of bringing the rate down again into the mid 1.15's, but sterling still feels buoyant, and it wouldn't surprise me at all if the financial press over the weekend were to be anti-Euro.

Some sterling news

First quarter UK GDP was confirmed at up 0.5%, which was important, as any lower revision would have been very bad news indeed. As it was, it kept sterling firm, and even allowed it to ride the potential storm of the threat of downgrading for a host of UK banks and building societies. I tend to think of this as rating agencies trying to flex their muscles, when in fact they have already proved that they are a very weak link in the financial chain.

Euro news

Nearly all of it bad. Epitomised by one Mr Juncker. Jean-Claude Juncker is the head of the Eurogroup, a clutch of EU finance ministers. Known to some as 'Mr Euro' or perhaps 'Herr Euro', he put the skids under his pet project by stating that the IMF may be unwilling to pay the next tranche of the bailout package to Greece. Who knows, maybe paying the bailout money for DSK has drained the coffers? That sent sterling crashing through the 1.16 level, as mentioned earlier. Not because sterling was particularly strong of course, but because the Euro was weakened.

Isn't that old news though? Maybe, but the fact is that the bad news is starting to stack up for the Euro. Look at this list:

 Italy put on downgrade watch by S&P (more muscle flexing by wimps, but still bad news.
 Anti government protests over unemployment and economy in Spain.
 Belgium has had no government for nearly a year, and may split.
 Angela Merkel’s Christian Democrats lose control of Baden-Wurttemburg for the first time since 1953.
 IMF to move away from European control after DSK caught with his trousers down?
 Portugal could be heading down Belgian lines as political crisis grows.


Makes the UK political and economic scene look positively benign, doesn't it? It may take a few weeks, but we might even start to edge up towards 1.20 again.

Now there's there kiss of death for you...