Currency: Sterling Weakens
After a relatively strong 2009 against major world currencies, sterling struggled early in 2010 and hit a 9-month low of 1.4784 against the dollar.
As the pound struggled and broke below 1.50, speculator Jim Rogers commented that the pound ‘may’ collapse. Jim Rogers is the outspoken currency and commodity speculator and co-founder (with George Soros) and former partner of the Quantum Fund. He is also the founder of the Rogers International Commodity Index (RICI) which MASECO uses to gain commodity exposure for our clients. PIMCO, one of the world’s largest bond investors, also came out with very bearish remarks about the UK Gilt market and the pound in general.
During the first part of the quarter, speculators amassed short positions in the euro in excess of $7.6bn as the financial community speculated that the Greek debt crisis would roll over and affect the rest of Europe. As a result, the euro fell below 1.40 against the dollar for the first time since June.
As the Swiss franc appreciated against the euro, the Swiss National Bank intervened in currency markets in an attempt to stem its rise.
Michael Hasenstab, the manager of the Templeton Global Bond fund, predicts that ‘many non G7 economies, such as China, Brazil, Indonesia, Korea and India, will likely return to pre-crisis trend levels within the next 12 months’ and consequently is overweight many emerging market and ‘secondary currencies’ such as Israel, Norway and Australia. His fund performed well and appreciated almost 7% (in US dollars) in the quarter outperforming the JPM Global Government Bond, S&P500, MSCI World, MSCI Emerging Markets, US government bonds and the RICI Commodity indices.
We expect the decoupling we have seen to continue and currencies such as the pound, euro, dollar and yen to continue to lose ground against a basket of currencies from economies with better balanced economic conditions.
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