F/X weekly comment

Still waiting for the move through to 1.2125, and with the budget this week it could be a case of sh*t or bust. Can Osborne navigate axing the 50% tax rate and still keep his austerity flag flying? We ended the week at 1.2030, which is quite reassuring in view of the almost relentless tendency to crash off the 1.20 level whenever we get a look at it. No earth-shattering news this week, but there were a few items of note:


Potential downgrade

Our good friends the rating agencies were at it again, trying to justify their existence. This time it was Fitch , deciding to lower the UK’s long-term outlook to negative from stable, while confirming our AAA rating for the time being. I sometimes wonder who takes any notice of these self-serving leeches.

Real data

The pound has been aided this week by a recent improvement in UK economic data including retail sales and a narrowing of the trade gap reducing the chance of a second recession and further QE by Merv and his gang. Sterling has also been supported against the Euro by a recent widening in the difference between short-term UK and German bond yields, creating an appetite for sterling in long term f/x dealing.

Unemployment

UK unemployment rose by 28,000 to 2.67 million during the three months to January, putting the unemployment rate at 8.4%, according to figures from the Office for National Statistics. Despite these high figures, the rise was the lowest in almost a year. They were actually lower than forecast, and the slowing rise is good news for the pound, which gained following the release.

A quick word about Greece

I know I said I was getting bored with talking about Greece, but an article I read today has pulled me up short. Austerity measures are one thing, and Greeks may have been living in a fiscal cloud cuckoo land for centuries, but they didn't create this mess, Europe did. Greece could have carried on quite happily in its own romantic dream if it hadn't been seduced into the euro under false pretences. Now it faces a 40% reduction in the healthcare budget this year alone, on top of tax hikes and wage cuts. New cases of all kinds of horrible diseases of all kinds are escalating at a truly alarming rate. Greece cannot take this. It is teetering on the verge of collapse and social disintegration. Greece will not be alone in this suffering.


What now?


I'll stick again to last week's forecast of 1.2125. Not that I have any faith in George Osborne, but I do have faith in sterling.