Survey results reported in Farming UK have revealed that less than one in ten knows that the British tomato season runs from February to October. Three-quarters of them “admitted being unaware of when the bulk of British fruit and vegetables are in season”. So far, so unsurprising, but four out of ten think peaches grow in Britain and one in eight believes bananas and pineapples do too.
Ignorance is bliss, they say, but it isn’t when you’re an investor trying to make the right currency decision. With the best will in the world, it is impossible to know whether this or that exchange rate will go up or down within a certain period. It is usually possible, however, to estimate that a given set of circumstances ought to result in a particular direction. A successful investor will make the correct deduction more than five times out of ten.
At the moment that process is more difficult than usual. While the signals from central banks in Washington, Frankfurt and London appear clear enough, actual delivery of what they indicate is less than certain.
The Federal Reserve is perhaps the easiest to read. The minutes of the Federal Open Market Committee’s meeting in early August revealed “many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery”. In the opinion of many analysts, that’s not the way the incoming information will point. They therefore expect more quantitative easing, of one sort or another. Thus investors have been rethinking their attitude to the dollar, selling it instead
of buying.
In the last month they have re-examined their approach to the euro too. They believe there is a realistic chance the European Central Bank will be given the opportunity to do “whatever it takes” to save the euro, as ecb president Mario Draghi promised at the end of July. But it faces no fewer pitfalls than before, not the least of which is the outspoken opposition of Germany’s Bundesbank president. Jens Weidmann is far from convinced that the ecb should print money to reduce the borrowing costs of Spain and Italy.
Whatever the ECB might or might not do for Spain and Italy, it will have no bearing on Greece’s situation. With each week that passes it looks more likely that Greece will have to declare itself in default, leading to the country’s withdrawal from the euro. The German chancellor deplores any such talk, saying that Greece must remain within the single currency, but the numbers say otherwise: the diet of austerity and cuts is pushing the Greek economy ever further into the mire.
The UK is not doing as badly as Greece, but all is not well there either. The ‘good news’ in late August was that the economy did not shrink by 0.7 per cent in the second quarter, as feared; it only shrank by 0.5 per cent. Investors did not have to put too much effort into constraining their jubilation. The bad news, from sterling’s standpoint, is that the Bank of England is another central bank giving serious consideration to another round of money-printing.
So the Bank of England and the Fed might print money to ease monetary policy, and the ECB might print it to make Club Med government debt more affordable. The investor’s challenge is to figure out which of the three outcomes is most damaging to its currency. It promises to be an ugly contest of the worst sort – one with no winners and in which success is achieved by not coming last.
Chris Redfern is a dealer at London-based Moneycorp, which has been dealing in foreign exchange since 1979 and last year traded over €13bn in currencies. The company has been accredited to iso 9000 certification since 1996 – a unique achievement in the foreign exchange industry. Moneycorp provides foreign exchange and treasury management services to help companies save money on their international payments and manage financial risk.
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