F/X weekly comment

Wrong again, but hey, get used to it. I have. My forecast last week of 1.2125 now looks a tad optimistic, as we are finishing the week at 1.1970, just 30 points shy of last week's close. It was quite an interesting week though, albeit driven once again by vultures circling high above the Parthenon.

Greek debt - cheap or expensive?

Both actually. Cheap if you're looking to buy it (are you mad?) or very expensive if you already own it. Central to this week's activity has been the attitude of the owners of Greek government bonds. These are promises made by the Greek government to repay debt at set rates at a set time; promises now rather difficult to keep, as the Greek government has run out of money. In order to stand any chance of being able to repay the second bailout, and in fact to sand any chance of being paid the second bailout, they had to persuade the bondholders to 'write off' over half of the money, and accept replacement bonds to repaid further in the future at lower rates. Why would anyone in their right mind vote to accept that deal? Because if they didn't, Greece would collapse into disorderly default on the bonds. In other words, settle for 25% of what you are owed or run a very large risk of getting nothing at all.

And I quote:

Nicolas Sarkozy, renowned sage and Euro leading light (snigger): 'I would like to say how happy I am that a solution to the Greek crisis, which has weighed on the economic and financial situation in Europe and the world for months, has been found.'

Greek Finance Minister Evangelos Venizelos: 'I believe everyone will soon realise that this is the only way to keep the country on its feet and give it a second historic chance that it needs'

Jacob Kirkegaardof the Peterson Institute for International Economics: 'More to protect Europe from Greece than for Greece itself'


Sarkozy is clearly otherwise engaged in planning his retirement from politics. Venizelos is clearly a dedicated optimist. Kirkegaardof lives in the real world. Europe is merely buying time with this charade. The time will be used by European governments and banks to strengthen their financial defences, leaving them less vulnerable when the Greek day of reckoning eventually arrives.


What now?

Greece will go away for now, until the wallpaper starts to show the cracks again. That will leave the field clear for a week or so to let economic data rule the roost for a change. That's as long as Spain or Portugal don't rise to the top of the agenda just yet. UK figures are looking promising. Some of the 'green shoots of recovery' are starting to appear, while in Europe things are still looking messy. Sterling interest rates will stay the same, but the Euro may have to bring rates down, as they started to rise much too early.

All of this is positive for sterling, so as long as Merv doesn't put the boot in, we should be able to have another good run at the 1.20's.

I'll stick to last week's forecast of 1.2125. Let's face it, if I keep that going long enough, it must be right one week, mustn't it?