Morning Brief – EUR

EUR

European Central Bank President Madame Lagarde made two bold statements last week: the ECB does not target exchange rates and the ECB is not dependent on Federal Reserve policy. While at one level both are sometimes true, it is brave to explicitly make those statements at a ECB press conference and more than risks hubris. The reason this is brave is that clearly US Consumer Price Inflation is more stubborn than expected and the Federal Reserve is not going to abandon its hard won gains in the fight against inflation so will hold off on cutting rates as quickly as expected a few short weeks ago. That is why the EUR is as weak as it is versus USD and why there is renewed market talk of shorting the EUR and targeting EUR/USD parity. That would most certainly impact both of Madame Lagarde’s statements and raise the spectre of hubris.

EUR/USD 1.0640.

Bank of England

Doubtless the Ben Bernanke review of the Bank of England’s forecasting models has made for uncomfortable weekend reading for Governor Andrew Bailey given that it has highlighted serious deficiencies in those Bank of England forecasting models. Having seen inflation reach 11% in 2022 and hear Governor Bailey claim that inflation at that level was transitory, cash strapped UK households -and voters- will not forgive or forget the cost of living crunch in the past two years. Given the size of the Covid response monetary stimulus, it would have been a miracle for it not to have been inflationary and contrary to all economic law, so it’s a puzzle that the BoE has been behind the curve on that one.

GBP/USD 1.2420

Japanese Yen

When Japan says that they are ready to take measures to protect the Japanese Yen, it does not mean exactly that: yes a weakening Yen is inflationary and yes the Bank of Japan or rather the Japanese Government does not like USD/JPY being the wrong side of 150, but in the ritual that is JPY intervention by the Japanese authorities, does not mean that any intervention actually takes place -other than infrequently. The market is used to the tactics but can never be quite sure whether a bazooka will be fired by the BoJ which would be hugely painful if not career damaging to those short of JPY. All that is clear at present is that the JPY has weakened by 8% versus USD so far this year and the BoJ is watching it carefully.

USD/JPY 153.10.

Switzerland

Named as the best place to do business, Switzerland has seen off competition from 33 countries in Europe, Middle East and Africa. The start up ecosystem, private business landscape, tax and regulation and education and skills are all judged to be best in the PWC survey in Switzerland. USD/CHF 0.9140.

The First Time I Ever Saw Your Face

This became a surprise number one hit for US singer Roberta Flack when it went to Number One this day in 1972. The song’s success was largely down to it featuring in Clint Eastwood’s hit movie. Play Misty For Me.

The first time ever I saw your face
I thought the sun rose in your eyes
And the moon and the stars were the gifts you gave
To the dark and the endless skies, my love
To the dark and the endless skies

And the first time ever I kissed your mouth
I felt the earth move in my hand
Like the trembling heart of a captive bird
That was there at my command, my love
That was there at my command, my love

And the first time ever I lay with you
I felt your heart so close to mine
And I knew our joy would fill the earth
And last ’til the end of time my love
And it would last ’til the end of time

The first time ever I saw your face
Your face, your face, your face…

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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