F/X weekly comment

So I get to pay out on the evens bet last week. Shame, but no real surprise. Nice to be right two weeks running though. There were some familiar factors involved:


Sixth time unlucky

Last week I pointed out that this was 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. And here we are again, back at 1.1800.


Greece to the rescue

An unlikely headline, at best, but that in effect is what happened for the Euro last week. The Greek government took it upon themselves to sign away even more of the ordinary Greek-in-the-street's ability to cope on a day to day basis. To be fair, the alternative is even less attractive in substance, even though it might be difficult to persuade the public of that fact. To rub salt in the wound, the EU, IMF and ECB also demanded, and got, a monitoring post in Athens so that they can keep an eye on things. Well I for one hope that the building they choose isn't too flammable, and I wouldn't be too happy if I were a German accountant given the Athens posting. ECB president Mario Draghi chipped in, saying that 'backtracking on fiscal targets would elicit an immediate reaction by the market'. Go Mario.


Under Sentance of Debt

Actually I can spell, usually. This is Andrew Sentance, who until last year was one of Merv's Merry Men. His gloomy forecast this week was that the UK will continue to struggle with poor growth and sporadic phases of recovery until at least 2016. He anticipates annual growth of 1% or less per year until then.


MMM

Talking of Merv and his crew, they also managed to contribute to sterling's relapse this week, with the release of the last Bank of England minutes to the decision two weeks ago to keep interest rates on hold. During that meeting the decision was taken to issue another £50bn of QE, and that was taken favourably by the market at the time. In the minutes it was revealed that two members of the committee wanted even more money pumped into the economy than the £50bn. The two voted for a £75bn slab of QE, but the other seven went for £50bn. The reason this has caused a problem for sterling is that the market had assumed that the decision would have been unanimous, and that recent good economic data would mean that we could put the printer away now. It now appears however that the door is still open for even more QE in the future, and this has helped weaken sterling as increasing the amount of currency in the system must inevitably devalue it.


So what now?

Doldrums time again for a while I'm afraid, until we either get more clear signals on the UK economy, or Greece kicks off again, as it surely will. I firmly believe that we will see 1.200 again soon, and sometime soon we're going to breach that level and stay there, but not just yet. Mid 1.1800's for me this week.