Weekly F/X Comment

Sterling and the Euro slugged it out all week, and sterling survived to end the week marginally higher than close of business last Friday at 1.1461, which of course confounded my theory that we would end up looking at the 1.12 level again for the time being. My main concern last week was the quarterly inflation report to be issued on Wednesday, but in fact this provided a boost for sterling:

Inflation fears rise in UK


Sterling was boosted on Wednesday as the B of E Inflation Report showed more worries than expected on the horizon on the inflation front. This resurrected ideas of an early interest rate hike, and sterling surged ahead against the Euro. The common currency soon fought back however, with more news on the Greek front.

Greece angst

The Euro lost ground to nearly every trading counterparty early in the week with more doubts surfacing over Portugal, and especially Greece. The banking systems are the main worry, with fears that the perhaps unknown depth of the Greek problem could throw the whole Euro banking system into turmoil. Sterling of course benefitted from this, especially with the boost of the inflation report to help it.

Another rabbit

One exasperating thing about the Euro is its ability to ‘pull rabbits out of the hat’ when up against the proverbial wall. There are so many things to take into consideration when you have a multitude of countries sharing the same currency. It is easy to focus on a problem in one area, without necessarily appreciating the necessary sense of scale required to take on beard news from other areas. Just when the doubters are focussing on Greece, the ECB will pull out a great set of growth figures for France and Germany. Add to that some decent figures for corporate growth in th Eurozone as a whole, and throw in the odd comment about future Euro rate rises, and all of a sudden the Euro looks far less of a basket case than it did ten minutes earlier.

Manipulation?

Far be it from me to suggest any great plot at work here. I’m not suggesting anything of the kind. What I am saying is that there are times when currency flows will be guided not by facts, but by structured presentation of those facts. What gets said and when is critical to currency movement in the short term. Over a longer period of time fundamental issues take control, but in the short term forecasting remains, as I am a prime example, a mugs game.

I don’t think sterling has much scope for growth in the current circumstances, so I’m sticking with my return to the 1,12s for now. I’m just not sure how quickly it will happen.