F/X Weekly comment

Don't you just love it when a plan comes together? All I apparently have to do is make a pessimistic forecast for sterling, and sure enough the green shoots of recovery might just have started to peep up through the dead grass. We finished the week at 1.1256, a whole lot higher than I expected, but welcome all the same. Apologies to anyone out there who profits from a weak pound (shame on you). It was a very interesting week in the F/X markets:

Interest rates
No prizes for correctly forecasting that UK rates would stay on hold and that the ECB would raise Euro rates by 0.25% to 1.5%, but the really important thing is what M. Trichet says afterwards. Unfortunately Merv doesn't say anything after his meeting, we have to wait 2 weeks for the minutes to be released. Very boring, very British.
Tricky Trichet though alluded to the fact that economic activity in the Eurozone seems to be slowing down. His words were backed-up by disappointing Italian Industrial Production numbers on Friday morning, along with German trade figures which showed that the Europe’s largest economy is becoming increasingly dependent on imports.
Although Merv doesn't comment on his meeting, he did announce that there would be no more money-printing (QE) at present. This also gave support to sterling. All 'fish to the grill' as I once heard a conference speaker say. To be fair, he was Italian, and I don't think he knew what grist was. .

Pigs
Portugal got the capital punishment this week, being downgraded a huge four notches by Moody's. The ECB promptly reacted by saying that they will continue to accept Portugal's bonds as collateral for loans, but then they don't have much choice, do they?

Stress
No, not the stress of having to write this stuff every weekend. Stress tests for banks. A bit like the end of term tests you used to have when education worked. There are results of stress tests for a large number of Eurozone banks due out next week, and they could make interesting reading. There is a rumour that the main five Italian banks have passed, but I think the National bank of Greece is looking a bit glum, and Irish eyes don't seem to be smiling.

UK economy
Not normally worth a mention, I know, but watch out. Last month's PPI input and output prices came in rather better than expected on Friday. Now you don't hear that very often, do you?

Where now?

It really pains me to say that I think we might have the start of something good for sterling here, because we all know that that would be the kiss of death to the pound. Actually though I am sensible enough to realise that nothing I either think, say or write will make the slightest bit of difference. 1.1350 next week please.