Currency watch: Volatility to remain in September

Albert Camus said that “Autumn is a second spring where every leaf is a flower”; a time for consolidation but also a time for renewal.

Unfortunately from an economic standpoint neither are likely to happen as the world turns to September. Broad measures of how the global economy is progressing show that the revival is fading and that the heat of industry is starting to cool.
 
This is happening on a global scale unfortunately and not just in the places that you would expect. Consumption in the US is slowing; something that is likely to continue as long as unemployment stays at elevated levels. Germany is almost single-handedly propping up the rest of the Eurozone with its recent export growth contributing to a cracking GDP reading of 2.2% for the second quarter but this is not enough. Markets are increasingly pricing in further pain for the weakest EU countries or PIIGS (Portugal, Ireland, Italy, Greece and Spain) with the yield on their sovereign debt increasing to reflect this.
 
The currency world is likely to remain volatile through the month of September and we believe sterling is likely to take a bit of a beating against the euro and the US dollar as investors will be unwilling to back the pound prior to the October spending review. Similar was seen before the election and we see sense in covering forthcoming exposures at current levels.

Jeremy Cook, chief economist at World First, 03.09.2010