F/X weekly comment

Some weekends I sit down to write this article and think 'what on earth am I going to write about?'. And then there are weekends like this one where I wonder where to start...

Sterling

Just like last week, forget about sterling. It wasn't in the game this week. It was an innocent bystander.


Greek Farce? Or Greek Tragedy?

Strong elements of both actually. If I were a scriptwriter and came up with this as a plot, I would be worried about being taken seriously. Let's keep to Greece to start with. I'll assume you all know the events that took place over the past 8 days, so I won't bore you with repetition, but I think the events of the week leave us with a clear picture of how Europe works at the moment. The Merkozy partnership sits at the top of the pile, and the only other people who matter are the ones who cause most trouble at any one time. The clear winner this week has been George Papandreou.

Having been summoned to the headmasters study last week to hear his fate (being let off with €150bn of debt), he then had the nerve to announce that he would ask his countrymen if they thought that was good enough, sending Merkozy into an apoplectic rage. I thought they handled it very well though. You couldn't see the bruises when he appeared on telly the next day to announce that he'd changed his mind. His own ministers then felt so sorry for him (or themselves) that he survived the vote of no confidence on Friday night. Maybe it's just that no-one fancies the job. I don't think he'll be around for long though.

The Italian Stallion

Looking increasingly like a knackered old nag, Silvio Berlusconi looks set to take the baton from Papandreou this week. The eternal survivor may just have passed his sell-by date, and he can't buy his way out of this one. Italy has queue jumped Spain to the top of the crisis leader board. Far from benefitting from calmer conditions after the rescued Greek bailout Italian government debt is now trading at 6.4%, well above what is now regarded as a sustainable level. The IMF are going in to take a look at the books (which version I'm not sure). His approval level at home is now down to 22%, which is poor when you think that he owns half of Italy. The sight of Merkozy smirking publicly when asked about Berlusconi has hurt Italian pride. The knives are out.

Super Mario

New ECB supremo Mario Draghi made a dramatic entrance this week, cutting the Euro base rate at his first ever conference. That never happens. The ECB likes to signal well in advance its intentions regarding interest rates. It doesn't like surprises. The problem though is that his predecessor had set the bank on a course to raise rates in line with the impending economic recovery. He was of course 'a bit previous'. The recovery hasn't arrived. Back to square one, and maybe beyond.


What next?

What this is all about of course is what will happen to the £/€ exchange rate? Maybe my experience this week will give you a clue. Following my own advice last week, and assuming that we would be in for more of the same old rubbish from sterling whenever it is given a chance to shine, I bought some Euros online on Tuesday at a rate of 1.1370. Congratulating myself on my decisiveness, I then watched the Euro dive (rate go up), and on Thursday bought some more at 1.1550. So mixed feelings overall. I did at least prove half of my theorem on exchange rate dealing. That is, deal and the rate will go up; don't deal and the rate will go down.

The week ended at 1.1620, so with the size deal I was doing (rather small I'm afraid), the rate I would get now would probably be about 1.1510. Unfortunately I don't have unlimited resources, so I won't be able to continue the experiment. That might mean that we see 1.1700 this week, but don't bet on it.