F/X weekly comment

Dazzling 'price action' this week. Instead of finishing unchanged against the Euro at 1.1670 we ended up miles away at 1.1650 At one stage it looked as though I might be claiming a rare success, when sterling defied all odds and went bounding into 1.17 territory after the Autumn Statement, quite the opposite direction proffered by most commentators apart from me. But lo and behold, the rally petered out and the market settled back into its recent snooze pattern, waiting for something really exciting to happen. And happen it just might...




The Heavy Mob

The gang held a reunion during the week with surprise joint action by the world's central banks. The FED, the European Central Bank and the central banks of the UK, Canada, Japan and Switzerland agreed to cut the cost of existing dollar credit terms by 0.5% in a bid to help European banks damaged by the Eurozone debt crisis. China also said it would free up money for its banks to lend. This pushed sterling down against the Euro, dampening Euro weakness.

Same old Sterling figures

UK manufacturing data out this week did little to impress the market despite being marginally higher than forecast at 47.6. Below 50 is bad, above 50 is good, so these figures continue to show the tough climate the UK economy is facing. This latest round of data is likely to weaken sterling in the short term as the market increases their expectation for further QE early in the new year.


AAA (not the batteries)

The Autumn Statement was actually seen internationally as setting out a credible plan to tackle the budget deficit, and is likely to help the UK retain its AAA status and encourage investors to hold UK government bonds. This is therefore likely to give some support to the pound despite the threat of further quantitative easing as the economy looks set to hit another recession.

Note the balancing tendencies of the last two paras!

The Doomsday Scenario

After all the toing and froing (I know that looks really odd, but Google says it doesn't need a hyphen), the future of the Euro remains apparently in the balance. Olli Rehn, EU economic and monetary affairs commissioner, warned of a 10 day deadline to the save the Euro. The alternative could potentially the breakup of the Eurozone and create serious issues for the UK economy (and a few others I'd wager). Yesterday (Thursday) Merv and the boys released their Financial Stability Report in which it calls the current mess "exceptionally threatening". Merv then said that the central bank action was only temporary relief and confirmed that his henchmen had contingency plans in case of a breakup of the Eurozone. Just to add to the mix, Sarkozy (he's half of Merkozy) gave a major speech in Toulon, in which he said that the Euro could not continue to exist unless Eurozone economies
pulled together. He said that he would meet with German Chancellor Angela Merkel on Monday to discuss steps to ensure the euro is saved. Is this the realisation of the masterplan?


Actually, I don't think so, but it is fantastic theatre. Sterling's woes are on the backburner at present. Euro woes are bigger and better. Much more fun. I'm buying small amounts of Euros every time the rate goes above 1.17, but then I'm a financial coward at heart.