The price of everything

The value of nothing

Today's newspapers report that Paula Brash has been banned from the road for drunk driving. For some reason the media find it important to stress that her car is a "£32,000 Jaguar". Had she been driving a "£439 Lada" she would doubtless be enjoying greater anonymity. Maybe that's what sterling needs - a Lada.

The pound's difficulty is that it cannot remain in the shadows for any length of time. When investors are in need of a target the spotlight will always pick it out and the hostile fire will rain down. During the first eleven months of 2015 sterling had a pretty good run, helped by distractions elsewhere such as Greek politics, China's economic slowdown and ECB quantitative easing. Over that period the pound strengthened by an average of 8.7%, losing out only to the US dollar and the Japanese yen.

The final month of the year, by contrast, has been a bit of a nightmare for sterling. It has fallen by an average of -2.2% against the other dozen most actively-traded currencies, losing 2 US cents and six and a half euro cents. On the face of it this is perplexing: no new issues prejudicial to the pound have emerged over the last four weeks. But the FX market has an almost mystical ability look at the same thing in different ways on different days. Today it doesn't love sterling.


Compared with the $45 fall in oil prices last year, the $18 decline in 2015 looks modest. However, proportionally it is still significant; 32% this year versus 45% last. The impact on the currencies of oil-exporting countries has varied widely and the implication is that there might be some catching-up to do.

Among the top ten oil exporters only down in ninth and tenth position - Norway and Canada - do you come to currencies which are genuinely freely-floating. The krone has fallen by -12% and the Loonie by -13.7%. Among the others, six of the exchange rates are subject to significant government interference (Russia, Iran, Iraq, Nigeria, Angola and Venezuela). The other two - Saudi's riyal and the UAE's dirham have been pegged to the dollar for three decades or more.

Investors are increasingly wondering if those pegs could survive a protracted period of $30-$40 oil. The answer is probably yes, but, if they cannot, be ready for another rush for cover in the franc, the yen, the euro, the dollar and, perhaps, the pound.


Investors will have a few ecostats to consider today, including Nationwide's report of a 4.5% annual rise in UK house prices. Mainly, though, they will be concerned with tidying up any loose ends in their positions in preparation for an early getaway tomorrow. 

Apart from Norwegian retail sales there are no important data from Europe. US pending home sales are the afternoon's highlight.

Tomorrow's list is even shorter: the ECB Governing Council meeting minutes and US weekly jobless claims.