F/X Weekly Comment

Whew! Got one right last week. I was beginning to forget what that felt like, but here we are, as predicted, back in the 1.20s, in fact at 1.2050 at close of play on Friday. Greece was again a factor, but to be honest I'm getting a bit bored of the attention being heaped on by far the smallest of the PIIG economies. Press and pundits seem less bored though, and determined to keep it in the news, so:


More Greek Woes

The euro was again under the cosh this week as the market concentrated on the news regarding the second Greek bailout. Deadlines came and went throughout the week, and a meeting scheduled for European finance chiefs on Wednesday, during which the deal was to have been finalised, was postponed until Monday due to German (and others) concerns that the Greek’s proposed austerity package didn't come with the required guarantee that the measures would actually be pushed through. A case of 'talk is expensive'. Ominously for Greece, a statement was also issued saying that 'further considerations are necessary'.


Moody Blues for Europe

No, not another comeback tour, but another ratings agency 'strutting its stuff'. This week Moody’s cut the debt ratings of six European countries including Italy, Spain and Portugal whilst placing France, Austria and ,oh yes, the UK on a negative outlook. They did however leave the European Financial Stability Facility’s AAA rating alone. (Why?)


Meanwhile Back 'Home'

The market had the unusual task of assimilating some good news for Sterling. The CBI came out with a bullish statement forecasting that the UK will avoid a double dip recession and that the recovery will gain momentum during the year. This was presumably based partly on the release of better than anticipated UK Retail Sales data for January. The annualised figure was posted at +2.0% versus expectations of a growth in shop sales of only 0.6%, raising investor’s expectations that the Bank of England will have to raise British interest rates sooner rather than later. Strange really, as only on Tuesday the headlines were that the sterling base rate would remain unchanged for at least two more years! The pound was also benefitting from the fact that only £50bn (only?) was issued last week instead of £75bn.


What now?

Well, this is now the sixth time that Sterling has poked its head up above the 1.20 level in the past three years, and of course on each of the previous five occasions it fell back, sometimes sharply. Last time though it only fell back into the 1.18's, and then only for a short time. Can this be sixth time lucky?

Bored of new from Greece I might be, but it will be Greek news that dictates which way Sterling goes from here. If a deal is reached on Monday, and Greece's gonads are wrung even tighter, the chances are that the Euro will strengthen and the rate will fall back again. If however, and this is possible, the Greek politicians decide that if they give any more ground it will be their gonads on the line, not the public's, we could have a very messy week indeed.

On balance, I think a deal will be struck. As the Dutch PM said this week 'It's cheaper to bail Greece out than to let it default'. I can see what he means, but Greece will default, by any reasonable description, whatever happens. The choice is between orderly default, with debtors agreeing to write off debt, and disorderly default, where the Greeks just decide they can't repay.

So I'll give you two prices this week, with betting odds:

1.2450 by next Friday 8/1
1.1825 by next Friday Evens

You can tell I've been to Monaco, can't you?