What an interesting week. The Armageddon that was really never going to happen, surprise, surprise, didn`t happen. The world has been spared the indignity of a technical default by its MVP – but in its place is a feeling of disappointment and uncertainty about the US that I find uncomfortable and not a little unsettling.
The eventual easing of the dollar this week has reflected a muted and slightly numb reaction to the outcome belatedly coming from Washington, and it is now, regrettably going to take quite a while, and some good economic numbers for this mess to fade from our minds. I have spoken enough this week about how in my view, the US political system has failed its stress test, and a repeat of this farrago in a few months time will, I am sure everyone agrees, be totally unacceptable. However, this nagging doubt can only colour the markets approach to the dollar until we get a resolution.
Meanwhile, the pound and the euro continue to ride the back of the dollars woes, with little enthusiasm, but also with little choice. I am very sure that there is a frustration – and not just in those two camps – that the prospect of a weaker dollar of Washington`s making is not conducive to the recovery underway elsewhere, but little I fear, can be done about this in the short term. The economic evidence from the US over the next few weeks will be tainted by the shut down, and therefore unlikely to be taken at face value, so a tentative, continued slide for the dollar over the next couple of weeks looks likely.
Although awkward elsewhere, is the easier dollar that we have seen over the past few months a welcome development in the US? In this non inflationary world of high prices, low wages, high unemployment and low expectations, a more competitive exchange rate is welcome most everywhere. But, wasn`t it just a few long months ago that we were all talking about the rush towards competitive devaluation, and wasn`t it this same US administration that gave Mr Abe a hard time, and has been banging on at China to revalue faster? If you are really sad enough, take a moment to read the latest (September, and twice yearly) report to Congress entitled `Current debates about exchange rates`. It`s a funny old world, and I guess what goes around, comes around…have a restful weekend.
