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Last updated at 7:56 AM, Wed, 1 Sep
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Currency watch September
Has the bad news stopped at last for the euro?
The pound’s 12-week climb against the US dollar culminated in a visit to US$1.60, at which point sterling (or at least its supporters) bottled out. As it retreated it took with it the euro, which itself had enjoyed a nine week rally against the dollar.
The change of heart - if that is what it is - seems to have come about not because the US economy is suddenly vibrant once again (it isn’t) but because there is a limit to how long investors can carry on selling a currency for the same old reason.
In the same way there is a limit to how long they can continue buying the pound on the back of a new government, an austerity budget and a stronger than expected economic performance.
There is a real suspicion that the UK economy peaked in the second quarter of the year. With 53 percent of Britons working in the public sector, spending and job cuts there will inevitably have a dampening effect on growth and employment: the only question is to what extent the private sector will be able to take up the slack. The prime minister and the chancellor argue that it will be able to make up the entire shortfall; investors are not so sure.
The outlook for Euroland is hardly any rosier but at least the bad news has abated. An inspection team comprised of representatives from the EU, the International Monetary Fund and the European Central Bank recently came back from Athens happy with Greece’s ‘impressive’ progress in dealing with its deficit problem. ‘Our overall assessment is that the programme has made a strong start,’ they said in a statement.
The successful inspection meant Greece would be able to draw down another €9 billion from the bailout fund and was positive for sentiment towards the euro.
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