I have been thinking I should write down some of my fundamental views, rather than just carrying them around in my head. I am wondering whether this could be a daily piece, with a different asset class each day. I’ll start with currencies, for the sake of choosing something. This is not supposed to be wildly impressive — it’s notes for me, and something I hope that readers will comment on if they disagree.
GBP: Ongoing worries about the general election together with the haplessness of Labour and the apparent ignorance of George Osbourne should continue to weigh on Sterling.
EUR: Greek woes could be in the price by now, and a resolution would be positive not just for Greece but for all the PIIGS. Ripe for a rebound, especially if a stronger growth story starts to take hold (Eurozone geared to global recovery because of exports). Danger to this view is the idea that the ECB will be later than the FRB to tighten — both are likely to have further economic woes this year that may see quantitative easing restarted so this is not so much a real risk and a risk of a developing perception if there is lots of bad EUR news.
JPY: Vulnerable to falling borrowing costs making it more attractive as a funding currency for carry trades. This is more likely to be the case if the BoJ bows to politicial pressure to do something about deflation — and therefore somewhat politically determined. What is the effect of a revaluation of the RMB? I am not sure. Likely to rise on further Chinese monetary tightening.
USD: Attractiveness as a funding currency vs. JPY is a factor. Negative correlation with risk trades breaking down as markets focus on the economic specifics of each currency bloc.