F/X weekly comment

Please forgive me for basking in the glory of a correct forecast, but it doesn't happen often. I signed off last week with 'What happens next is anybody's guess, but mine is that Greece will stay in the news, and we may see the pound hang on above 1.1550 by next Friday, when I will (hopefully) report on a full week of shenanigans'. Well, here we are in the high 1.15s, and it certainly has been a week to remember...

QE2

No, not the boat, the (money) printer. £75bn of it, taking the total extra cash launched into the UK economy to £275bn so far. Where has it gone? Search me, well don't bother actually, because I haven't seen any of it. To be fair, it's not paper money, good old £20 notes. No, it's bond purchases, injecting money into the balance sheets of sick banks. More on them later.

Strange in a way, as up to the last MPC meeting there was only one member, Adam Posen, calling for more QE. Suddenly he has at least four other believers, and the button gets pressed. Now call me cynical if you wish, but could this possibly have any connection wiht the fact that sterling crept over 1.1700 to the Euro earlier this week, as Greece did indeed stay in the news, and for all the same recent reasons? Bust, Broke, Bankrupt. Now when a country or an economic zone is in trouble, one way to crawl out of it is to weaken your currency, and we have seen Merv and the boys follow this line religiously. Yet here was the Euro managing to out-weaken us. What can we do to stop the flow? What about another dose of QE? The markets hate it and they will sell sterling. And they did, but mostly against the dollar. We did fall into the 1.14s for a while, but the plain fact is that the Euro is having a difficult time of it at present, so we soon saw sterling edging back over 1.1500. I did read one commentators page which tried to push the line that the market was impressed by the MPC talking decisive action to kickstart the UK economy. Balderdash.


Sick Banks

As a measure of how stressed the Euro is, not even the downgrading of twelve UK financial institutions, including RBS, Lloyds,and the Co-op, managed to pull sterling back into the doldrums. Fascinating stuff. There's no doubt that the UK economy is deep in the mire, and sterling should be heading south at a rate of knots. With the likes of Greece and the other PIGS in such a parlous state however, we have taken on the rosy glow of a safe-haven currency. How long for I wonder?


What next?

I spent a good part of this week attending presentations by analysts and fund managers, and of course economic woes were high on the list of topics for discussion. I had to smile though when one fund manager made a valiant case for there being no default by Greece on its debt. this was in complete contradiction of the previous speaker, who said it was a' given'. I like a good contrarian view.

For that very reason I'm going for a good week for sterling this week. Let's have another go at the 1.17's. That might be because I was away and didn't get the chance to buy some Euros up there though...