F/X Weekly comment

I'm uneasy. The reason I'm uneasy is that I'm not used to getting things as right as I did last week. The pound finished the week at 1.1400, even higher than my anticipated rate of 1.1350, but who's going to worry about and extra 50 basis points? But will it last?

Stress tests
The results of those stress tests on 90 European banks were announced a few minutes ago, and the results seem to be quite interesting. The Euro has been under pressure all week in anticipation of these results, and the announcement came after close of business on Friday, presumably to avoid any great sell off. In the event it seems that only 8 banks have failed. So far they haven't been named, other than one minor regional German bank, Helaba, who fell out with the examiners. The act that only seven others failed could well be supportive for the Euro on Monday, assuming there are no big names on the list. There is however a school of thought that the tests were not hard enough (think GCSE V A-Level), and didn't for example take into account the possibility of a Greek default, which looks to be almost a certainty. This could lead to further trouble for the Euro in the coming weeks.

UK data
Sterling's bounce has not had much do with any improvement in the UK economic data. Most market forecasters had been calling for sterling to move lower as a result of all the poor data we have seen of late, but the Euro's debt issues have outweighed this for a change. Unemployment data during the week showed a sharp rise, adding to concerns that poor growth prospects may prompt more QE from the Bank of England. More concerns about high debt levels, the effect of harsh austerity measures and poor UK exports could keep sterling weak, particularly against currencies other than Euro. The risk then is that despite recent gains, many analysts are still saying sterling may struggle due to all the negative economic data we are seeing.

Which wins?
That, of course, is the crunch question, but I'm on a roll here. I got last week right by calling for a weak Euro, so I'm going to keep my chips on red and go for gold (such Ill-literacy). I think sterling will have done a great job if we manage to consolidate in the 1,14s, so fingers crossed!