F/X weekly comment

So we started the week on 1.1450 and we ended at? 1.1460 - exciting stuff, not. That's about it really, but I suppose I'm expected to write a bit more than that. Actually the message is starting to get a little tiresome. Sterling is in trouble because the UK can't get off the ground as far as a recovery from the recession is concerned. The Euro is in trouble because all the members of the Euro that shouldn't really have been in it in the first place now find that they can't afford to repay the debts that have built up to the rich European nations (and others) since the Euro began. There are a limited number of ways that you can continually narrate the same story.

But what the heck, something interesting must have happened this week?

USD strength

Yes, I know that's got bagger all to do with the GBP/EUR rate, but bear with me. The reason the dollar strengthened wasn't that the USA looks like a good place to invest, or the economy is booming. Far from it. Political divisions, rising jobless and falling house prices make the USA another basket case, but the dollar is a reserve currency. That means that when everything else around us is falling down, speculators will buy the dollar. It now seems that in addition to growth in Europe and the states being static at best, China and India are now falling by the wayside, and the other BRIC countries don't have much to offer either (That's Brazil and Russia). Gloomsters are starting to talk about a global recession again. Yawn.

QE

Yes, money printing is back on the agenda. With an air of a gropu of punters getting increasingly desperate to reverse a bad run of luck, Merv and his men are considering another throw of the QE dice. £50bn here, £50bn there, surely it must do some good eventually? Maybe, maybe not, but currency dealers don't like it. Something about an old fashioned view that it might increase inflation in future. Surely not? (actually a racing certainty if you ask me).


Euro

Can't really leave the Euro out of this, can we? The Greek finance minister called talks with nearly all the international debt agencies 'productive'. I bet they were. As far as I'm concerned any talk that brings Greece closer to bankruptcy or a debt restructuring will put the euro under more and more pressure, so we should still see sterling having the occasional look at 1.20.

What next?

It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet. (and yes, I do know that this paragraph was in last week's comment)

1.1375 for me. A bit boring really. We shall see...