Good Bad or Indifferent?

Sterling is fast becoming the “Marmite currency”. Marmite, for those who don’t know it is a savoury spread which is often given to children in the UK. as a source of protein. It is loved and loathed in almost equal measure and has become a byword for anything that is treated in the same manner.

The pound was until quite recently loved by traders who believed that rates were going to rise and continue doing so for at least the rest of the year.

Last week was always going to be a watershed for that view and so it proved with wages growing at a faster rate than inflation but that was where the good news (for the currency bulls) ground to a halt. Inflation fell to 2.5%, a lower level that even the most optimistic observer had expected, economic activity fell and rumours about deadlock over the Irish Border started to leak out of Brussels.

The pound lost close to 3% and looks set to fall further if hedge funds start to bail out of what are very large long positions.

Hence the Marmite tag which is unlikely to disappear any time soon. With liquidity becoming the prime consideration of Euro positions and the Jpy and Chf becoming simply barometers of risk appetite, Sterling is fast becoming the speculator’s currency of choice given its wide-ranging set of drivers.

Euro Pressured but Still in Range

The common currency finally woke from its slumber on Friday but only in reaction to a stronger dollar. Having traded in its narrowest range since the first week of the year, the Euro had a little over a hundred-pip range on Friday but remained very much in reactive mode.

The ECB and wider Eurozone authorities who have designs on the single currency being adopted as the world’s reserve currency will have been delighted with how it has benefitted from the massive liquidity which creates a buffer against anything untoward.

The growing maturity of the currency, which I for one had confidently predicted would collapse at the first sign of trouble, is impressive and the way in which liquidity and technology are working together is a sure sign that it can eventually usurp the dollar.

The Eurozone economy is starting to grow, and this will bring calls for higher interest rates and the removal of accommodation. But as this week’s ECB meeting will continue to attest to, the ECB will prefer the “steady as she goes” policy that has served it well as the economy as has returned to trend.

It is hard to say when the starting gun will sound for the campaigns to replace Mario Draghi, but it is most likely to be after another summer where the single currency basks in the glow of high liquidity and low volatility.

Risk and rates boost dollar

Does Donald Trump scare Kim Jong-un that much?

It seems that the answer is yes!

Kim has gone along in his own sweet way for a few years now goading the west and those around him acting pretty much as he pleased. Then, along comes President Trump, a man who Kim clearly sees as a true adversary and may just be crazy enough to launch an attack on Pyongyang.

It seems that these two men will meet at some point soon in what will be the photo opportunity of the century. The biggest question is not now if or when the talks will take place but where. Washington? No! Pyongyang? No! Beijing? Tokyo? Who knows?

It is hard to say who will gain the most kudos, Trump for getting Kim to suspend nuclear testing and development (for now) or Kim for managing to grab Trump’s attention sufficiently to get him around a table.

The dollar index has rebounded a little but remains below the 90.50 resistance. Risk appetite has improved considerably, and rates have started to rise again in the U.S. all positives for the dollar which could end up having a very positive second quarter

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Alan is a highly experienced banker with an in depth knowledge of Corporate Banking, Treasury and Trade Finance. He has had a varied career in Global markets, Risk management, FX Trading and Sales & Interest Rate Management. He has managed sales teams mentoring his team in both markets and marketing.He has been published in a number of journals and has appeared daily on radio to discuss market movements and events. His first novel was recently published.