F/X Weekly comment

Pretty much more of the same this week, with the markets trying to pick the best of a bad bunch. Sterling actually did quite well for a few days, moving into the mid 1.1500 as one point, but we end the week on a familiar note, and back down at the 1.1450 mark, not too bad in terms of this year, but woefully short of where we could and should be.

Euro's weak
EU and German GDP figures released this week were disappointing. The German economy only grew by 0.1%, France by 0.0%, and the EU as a whole only 0.2%. The slow growth figures hampered the Euro, allowing sterling to make gains during the week. Sarkozy and Merkel also had another little get-together this week, but were unable to come up with a unified agreement on debt this weakened the Euro further. Watch out for more developments on Eurozone debt next week.

Sterling's nearly as weak
All was going swimmingly for the first three or four days of this week. Sterling was perceived as the best of the bunch on the currency markets for a change. That might seem remarkable, but the choices were limited. The USD is going through its own crisis at the moment, and other potential safe havens such as the yen and the Swiss franc have become so strong that their governments have been taking drastic measures to weaken their currencies. For all its faults, sterling can be seen as a bastion of financial stability in relation to many other countries in some people's eyes.
Then Friday the UK Public Sector Net Borrowing figure showed that the UK generated £2bn of new debt in July alone. This cannot have come as a huge surprise to the market given what we know about the strength of the recovery, but it weighed down on sterling and we managed to give up most of the week's gains during the rest of the day.


What now?
Next week we have the UK GDP Growth figures for the second quarter, and they aren't likely to be up to much either, so stand by for a dodgy time next week. My forecast last week was 1.1350 and I talked about timing being of the essence. I think maybe 1.1350might be a good place to be this time next week.