Open trading account 
Not since late January/early February this year have we seen cable with a tag of 1.6, and further appreciation the other side of that number has been tentative (previous highs of only 1.62 and change in May and September 2012). I don`t get the news that there is a huge head of steam in terms of positioning behind this move, but cable has certainly been a precious and rare friend of the hedge fund community since the latest uptrend started in July.Important to remember that to model driven currency hedge funds the `psychology` of 1.60, and previous highs is irrelevant. The models will now be long, and will be long until any `lookback` turns them round. So we have a market which is passably long, reflecting the improved performance for UK plc with its associated increased possibility of higher rates and the current uncertainty reflected in the external value of the $.
This is quite an interesting week for the UK, with inflation numbers and retail sales, and it would be surprising if didn`t see 1.60 challenged again on the back of good numbers, but with £/euro nearing 1.20 (previous selling at that level) it may need a bit of a dual push – FOMC aided – to take cable significantly above 1.60. In brief, there are significant headwinds in positioning and recent history to be sceptical about a further appreciation from these levels, but I rather favour the longs to hold off and chance a break of 1.60 because there will be demand above that, looking to get out 1.6150ish. This is a momentum argument: I would rather be long and wrong rather than short and caught….
For the wider economy in exchange rate matters, whatever is least convenient, generally happens, and we are seeing just that now. A stronger exchange rate is not exactly a catalyst to a sustained recovery, but 1.60 and 1.20 are not penal. No serious problems at these levels, the screaming from exporters only becomes real another 5% from here!