F/X weekly comment

Normal service is resumed this week, with my forecast of 1.1700 a good 300 points adrift of the actual result. To be fair though, it is probably a fair reflection of the news and statistic that have emerged since last weekend. My sentiment is changed, to the extent that bought some Euros this week at 1.1350. Here's why I did that:


UK Stats

As you may guess, nothing to look at with any enthusiasm. Unemployment is now at its highest level since 1996. An 8.1% rise in one month. 2.57m Britons now are out of work. The labour market figures also showed that UK youth unemployment has reached a record level, with 991,000 British 16-24 year olds currently without work. This represents the coal-face of the austerity measures, and can only increase pressure on Osborn and Cameron to ease their foot off the pedal. If they do that, the markets will perceive it as a sign of weakness, and sterling will be under even more pressure.

The UK trade deficit actually narrowed to £1.9bn this week, a better figure than expected, but it didn't help at all. That in itself is another bad sign. When no-one buys your currency when good news comes out, it could be time to batten down the hatches.

Last week's decision to print another £75bn of readies also started to drag on the pound, despite being relatively well received last week.


Euro politics

European politicians were having a busy time this week, mostly at sterling's expense. Slovakia grabbed its 15 minutes of fame by rejecting ratification of the expansion of the European Financial Stability Facility, or trough as I prefer to think of it. Nobody really took them seriously though, and sure enough a day or so later another vote saw the measure passed. Isn't politics wonderful? Such flexibility of mind, and maybe wallet.

EC President Jose Manuel Barroso waded in with a speech outlining the roadmap to lead the Eurozone out of the debt problems it is currently treading water in. Barroso outlined five wide-ranging policies, including closer political unity, increased pressure on retail banks to support troubled states and the bolstering of the aforementioned EFSF. He then stretched the imagination a little too far when he declared that 'any decision to use its capacity more efficiently through leveraging will not have an effect on its triple-A rating'. Yeah, right.

Meanwhile, there was also good news for the Eurozone’s real economy, with the release of August’s whole-of-Eurozone Industrial Production figure, which showed that industrial output had unexpectedly expanded by 1.2% since July’s figure. Analysts had anticipated that the figure would show a monthly contraction of 0.8%.




What next?


As you may have gathered, I'm getting an unhappy feeling for the pound at the moment. The signs are looking a little ominous. There is a huge meeting due at the end of the month, with Sarkozy and Merkel due to reveal their plans to save the Euro, and probably the world with it. If the markets swallow it, the pound will struggle while it continues to produce poor economic data. I don't think too much will happen in the next week, but I might buy some more Euros. 1.13ish for me by next weekend