F/X weekly comment

Now this is more like it! I must confess to feeling a little bit pleased with myself when the pound finally went through the forecast 1.2125 on Thursday and at one point traded at 1.2140. After all, it doesn't happen that often, does it? Friday of course was a bit of a non-event, as the UK was on holiday, but most of the rest of the financial world traded on and the Euro could have moved sharply in our absence, but it didn't. We ended the week at 1.2120, close enough to last week's target to keep me happy. Here's how the week panned out.


UK on the up

The Halifax House price index rose 2.2% in March, following the drop by 0.4% in February. The Services PMI rose to 55.3 in March compared to 53.8 in February. A decrease to 53.5 was widely expected in the market. Other reports earlier this week were also positive, giving hope that Merv and his crew will keep their powder dry on more QE in May. These figures were indeed very welcome, and they also highlighted a contrast with a struggling euro zone economy.


Euro downer

The release of more disappointing economic data from Germany, this time in the form of February’s Industrial Production figures, contributed to a rocky week for the Euro. This combined with persistent fears about the spiralling yields on several eurozone states’ bonds. There was no change to EU interest rates in this week's ECB meeting. This was expected, but what wasn't were the comments by the ECB president Mario Draghi. He said the euro zone economic outlook is subject to downside risks relating to the debt crisis and commodity prices. Whilst this may seem obvious, the fact that a person in his position says it speaks far greater volumes.

A disappointing auction of Spanish government bonds also weighed on the Euro, as worries grew about Spain's high debt levels and weak economy. Europe's economic prospects look very poor indeed, and debt problems in Spain, Portugal and Italy mean that the ECB will have to dig even deeper to support banks and its weaker economies. Greece almost pales into insignificance.


A new dawn, or did someone turn a light on by mistake?

I'm going to keep my optimistic hat on this week. As I said last week, things are starting to feel different. It's a bit like watching the Baggies 2-0 up with ten minutes to go, and cruising. Very comfortable, very unusual, and you know anything can happen! I'd really like to see a consolidation in the 1.21 range next week. Not too much to ask for, is it?