F/X weekly comment

It's been a low-key week on the F/X markets, and yet sterling has managed to creep up on the blind side and has yet again inched past the 1.20 level. That makes my forecast for last week plainly wrong, so what happened to make the pound exceed my expectations?


To print or not to print, that is the question

To which no-one really seems yet to have an answer. In essence, Merv back-tracked on the subject. He said on Wednesday the BOE will be guided by upcoming data when deciding whether to issue more QE. It had been widely anticipated that another £25bn would need to be printed in the next few months, but it appears that the latest data has cast doubt on these expectations.

On the other side of the Channel, Europe doesn't do QE, or at least says it doesn't. What it does do however is make vast sums of cheap money available to the banking system from time to time, as it did this week. Now you or I would be hard pressed to spot the difference between this and QE, but the markets know a ringer when they see one, and this week's actions have weakened the Euro just as much as they have strengthened sterling.


Back to basics - data, data and more data

Some decent UK figures and some dodgy Euro ones didn't do us any harm at all during the week. Thursday's manufacturing data edged down slightly to 51.2 from 51.8 but held above the key 50 level that divides expansion from contraction. Friday's construction index was very pleasing, coming in at 54.3 against forecasts of 51.3 thus showing expansion in an important area of UK economic activity. A view is starting to emerge that the economy is recovering (say it in hushed tones) and if this is the case it will of course help sterling rally.

German retail sales figures out on Friday showed an unexpected drop as price rises start to hit the consumer. A better figure had been expected s a result of a lowering of tension surrounding the Euro zone debt crisis. Thursdays manufacturing PMI from Germany stayed in positive territory, but wasn't anything to shout about. The Euro has certainly not shaken off doubts as to the peripheral economies, indeed fears for the Greek bailout are bubbling under the surface again.


Gissa job

Eurozone employment data showed that unemployment in the region rose to its highest level in the Euro's history in January, to touch a scary 10.7%. It is beginning to look as though pan European austerity measures are bringing an unwelcome side effect on growth and jobs across the whole economic area.


What now?

Can this be seventh time lucky? Can Greece stay out of the headlines for two weeks running? Will Merv be able to resist pulling the plug on sterling yet again? Maybe, just maybe, I'm going for 1.2125 next week. Fingers crossed!