Weekly F/X Comment

Well if the last week of 2010 was boring, 2011 is showing signs of being determined to make up for it. Last week I lauded the idea of £/€ at 1.2300, and on Thursday morning it was trying hard to hold on to 1.1750. Good job I don't get paid by results... (maybe in a sense I do). So what is going on?

Sterling own goal
Surprise surprise! We're on a roll, let's see what we can do to sabotage it. Two things combined will certainly help, PPI (Producer Price Input) inflation figure up 2% higher than expected, and the CEBR (Centre for Economics and Business Research) has estimated that UK growth will slide back to 1.1% this year compared with a forecast of 2.1%. So more double-dip recession fears for the faint-hearted.

Euro strikers on form
Funny old world. Spain and Portugal paraded with their necks on the chopping block at the bond auctions, and what happens? The fickle investment world lets them off the hook! Also strengthening the Euro was the comments by European Central Bank president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment lemmings to buy the euro.

Rubbish ref!
This really is a load of old tosh! If you have any euros to sell, sell them now. This rate must go up. I loved Jeremy Cook's comment from WorldFirst f/x:
'Sometimes life throws you a curve ball which you miss, take in the teeth and end up with a bloody mouth. Jean-Claude Trichet, head of the ECB's rate setting committee, did that to those of us who think the euro is clinging on to its current value by its fingernails yesterday by announcing that the Euro area faces significant inflation pressures in the near future. This, plus the fact that these pressures would be 'closely monitored', sent the markets into spasm, a frenzy of euro buying with traders betting on an interest rate hike sometime this year. Now, an interest rate rise in the Eurozone is not the dumbest idea we've heard in a while (step forward Qatari World Cup) but it runs it close. Any tightening of monetary policy would be such a catastrophe for those peripheral economies shouldering troubling amounts of debt that the squeals of pain would be heard in every corner of the world. A rate rise won't happen for a long, long time and nor should it. '

Absolutely spot-on. If the markets don't see sense and sell the euro soon, I'll... well I don't know what I'll do. Hats are mostly indigestible after all. Lose money I suppose.

This week?
Reason does not seem to be on my side, but I don't care. I'm still looking for 1.23 before the month's out!