Usually we find a fairly uniform movement either for sterling or against.
Not so last week. As the fallout from China’s failed attempt to encourage a move towards convertibility crushed equities, which crushed commodities, the FX market saw a flight to quality, but not as typical as on previous occasions.
It's not hard to understand an upmove in the Swiss franc and maybe Japanese yen, but to see the euro keep pace was a surprise to many.
Economic data last week appeared to be of little consequence as slightly disappointing PMI numbers for Europe were ignored. With the Greek situation, subject to a general election next month, now put to bed for another three years it gives commentators an opportunity to focus more closely on the European economy.
The unanswerable conundrum is whether a further €720bn of quantitative easing over the next 12 months will set the European economies alight or not. There may be too many short positions in play at this moment, suggesting further recovery for the euro.
The spotlight for this week will be China. Will the authorities ease liquidity requirements for the banks, and will they intervene to stabilise the indices? Was this all just a bit of midsummer madness? The jury remains out.
No comments yet