F/X weekly comment

Last week my modest hope was that sterling would be able to consolidate in the 1.21 range, and lo and behold, here we are a week later at 1.2120. Not only did we manage to stay in range on the week, we also managed to reach an 18 month high 1.2160 on Wednesday. The only tarnish was that we also sat 1.2080 during the week, but then it's not a perfect world, is it? Newsworthy this week:


Crest of a wave

With hopefully more, bigger waves to follow. I think sentiment has changed. I mentioned recently that whatever bad news comes through for sterling at the moment, the market seems to cock a deaf ear and ignore it. This week it was some pretty awful UK trade deficit figures for in February; £8.8bn instead of the predicted £7.7bn. The pound went up on the news! Eurozone industrial production did better than expected in February, rising by 0.5%, but the market bought sterling again. How refreshing.

Talking of bigger waves, we are now within approximately 250 points of the highest sterling/Euro level for nearly four years. Heady stuff indeed. The problem here is that as rates get higher, private individuals, companies and speculators all tend to start buying the Euro. fair enough, I know, but think what's on the other half of that trade They are selling sterling. A 'bought' currency gets stronger, a 'sold' currency gets weaker. Not exactly what we're looking for.

Another concern that I have is that Merv and the boys are firmly of the opinion that a weak pound will help the UK in the long run by making exports more affordable overseas. They are quite capable of spiking sterling's guns when we least expect it.


Remember George Soros?

He has a bit of history in foreign exchange markets, to say the least. He's never gone away since his heydays in the 80s and 90s, and every now and then he speaks out and markets listen. He talked about a corporate reluctance to leave their funds in euro-denominated assets, then went on to say that Germany is attempting to impose a near-impossible task on the Eurozone in enforcing unworkable austerity measures on the region’s peripheral states. He then waded in with an assertion that the single currency, in its current state, is ‘broken’ and needs to be mended. Well I think we all knew that already. The problem is that instead of strong medicine or surgery, sticking plasters seem to be the chosen tool.



Onwards and upwards?

I'd like to think so, but I'm a bit wary . If sentiment remains intact and bad UK figures continue to be ignored, then yes. If the figures are good, yes. But there are two ways to view a consolidation in the 1.21s. It could be a new 'base camp' from which to climb further, or it could be a plateau, where the ascent could run out of steam.

We need to remember that the UK is exposed to the EU debt crisis, partly because we need them as customers, and partly due to the fact our banks are up to their necks in that same debt. This scenario will keep the Euro weak, but it may also start to weigh heavily on the pound

I'm going to keep my optimistic hat on this week, but for me that means further consolidation of the 1.21 level. let's get used to being here for a while.