The Great Debate UK
Don’t Mention the War!
Modern wars have no clear start and no clear end, leaving politicians free to deny their existence when it suits them and to claim victory even in the face of obvious defeat.
The same seems to be true of currency wars, judging by the reports from the meeting of the world’s finance ministers in Moscow, who, according to the FT, asserted that “central banks should not target their exchange rates, but added that monetary easing which had the side-effect of weakening a country’s currency was allowed”. This is a bit like saying that bombing civilians is OK as long as you’re actually aiming at terrorists – which, come to think of it, is more or less what we do say.
If you think it is only in the Economics 101 textbook that currency depreciation follows monetary easing as night follows day, then read on: “Shorting the Japanese yen ….hedge funds [have been] reaping billion dollar profits … in January.” The hedge funds had got the message.
The background to this saga goes back to the dark days immediately following the collapse of Lehman Bros in September 2008, when the US authorities hastily embarked on a campaign of so-called Quantitative Easing (again, as in all modern wars, uncomfortable realities have to be camouflaged in specially-invented newspeak – QE is simply what used to be called printing money). Britain did the same. True, neither the US administration nor the Labour Government of Gordon Brown actually took aim at the exchange rate – at least, not publicly – but the Americans were at the very least unconcerned about the effect on the dollar, and on this side of the Atlantic there was quiet satisfaction when the pound duly fell by 20% against the dollar and 30% against the euro.
Hollande the Brave
The French President has been in the press a lot recently. Firstly, there was the triumph in Mali. “Vive le France!” could be heard in the streets and the swift removal of the Taliban from Northern parts of the country is to be lauded. But after a rousing welcome in Timbuktu, Hollande might find he has a chillier welcome closer to home.
This week Hollande spoke out against the level of the euro. Not only did he do that, but he questioned why the ECB is the only authority in the euro zone who has power over the currency and said that governments’ should have some say on FX policy. This is brave stuff. Hollande is questioning the notion of a free-floating currency, something that the euro zone is fully signed up to and advocates along with other countries in the G20.
False dawn or risk recovery?
-Jane Foley is research director at Forex.com. The opinions expressed are her own.-
What began at the start of the year with an acknowledgement from Greece that it had been living way beyond its means soon turned into a more universal re-appraisal of the risks of sovereign default.
A hung parliament offers sterling little comfort
-Mark Bolsom is head of the UK Trading Desk at Travelex, the world’s largest non-bank FX payments specialist. The opinions expressed are his own.-
The final results are almost fully in and despite months of intense speculation the hung parliament outcome has come as an almighty shock to the financial markets.
The Greek story is not over yet
- Jane Foley is research director at Forex.com. The opinions expressed are her own.-
By rushing extra austerity measures through parliament last week and finding very good support for its bond sale Greece last week pulled its way clear of the edge of the abyss. This is not the end of the story, however, but rather just another chapter in the fledging system which is European Monetary Union.
Greece loses a major incentive to stay within EMU
-Jane Foley is research director of Forex.com. The opinions expressed are her own.-
Germany’s Finance Ministry this week denied a report in Le Monde that Germany, France and other countries were working on a package to rescue Greece. It seems that for now the official line from the grandfathers of European Monetary Union is that Greece can sort out its own budget deficit. The official line from the Greek government is much the same; it continues to maintain that it doesn’t need a bailout.
Too soon to predict that EMU will wobble
-Jane Foley is research director at Forex.com. The opinions expressed are her own.-
The budget crisis facing the Greek government has drawn an array of comments and responses from various parts of the European Central Bank, the European Commission, the International Monetary Fund and the financial markets.
Tides may turn in the forex market into 2010
-Jane Foley is research director at Forex.com. The opinions expressed are her own.-
The final weeks of 2009 have brought a sense that tides may be turning in the foreign exchange market reflecting broader developments in the global economy. The predominant changes relate to the dollar.
Development of the risk trade
- Jane Foley is research director at Forex.com. The opinions expressed are her own.-
A willingness to differentiate between risk on a country or at a regional level is an important part of the repair process in financial markets.
Will inflation soar when QE is withdrawn?
- Mark Bolsom is Head of the UK Trading desk at Travelex, the world’s largest non-bank foreign exchange and international payments provider. The opinions expressed are his own. -
The rise in November’s CPI figure was larger than expected, but not a total surprise and markets have largely ignored the data.
