During the compilation of last month’s edition of this column the euro traded at €1.1335 to the pound and at $1.4450. It has visited those exact same levels today. To take the comparisons a stage further, euro/dollar has crossed the $1.4450 line more than a dozen times since April and sterling/euro has passed through €1.1335, at a rough count, 16 times since March. As with a football match that goes to penalties after extra time, with the teams drawing 6-6, that does not mean nothing has been going on.
The southern European sovereign debt crisis continues to fester, although with three quarters of the continent’s politicians and bankers on holiday it has been festering more slowly in August. The European Central Bank has been holding things together, buying Spanish and Italian government bonds to prop up the market, but that is no more than a short term tactic. Without a proper solution things will get nasty.
In Washington the bloody-mindedness of party politicians has cost America its triple-A credit rating, at least as far as Standard & Poor’s is concerned. Having refused to agree on an increase to the debt ceiling they could well have condemned the country to spending cuts which will have an arbitrary impact on the rich and poor alike. Well, the poor, anyway.
Relatively, Britain is the saint in all of this. It has no credit or budget crisis. There is (albeit unenthusiastic) government harmony on the fiscal position. Economic growth in Q2 was at least equal to Germany and the euro zone. Together with an undisputed AAA credit rating it makes sterling a candidate for the world’s top safe-haven currency at a time when one is needed the most.
But life is not that simple. Sterling’s long record of boom-and-bust makes investors wary. So they don’t like the euro, they don’t like the dollar and they don’t trust the pound. It is not impossible to imagine having this very same conversation in a month’s time.