In the UK, despite the cautionary caveats of analysts, ongoing US dollar weakness is inevitably being spun as a recovery in the strength of sterling after the Brexit chaos of 2016 and 2017.
And it is to some extent true that with a return to trading above US$1.40 to the pound, the currency shock inflicted by Brexit has been salved.
But as the analyst caveats so clearly say, this is a story not of sterling strength, but of dollar weakness. Or to put it another way, what of the Euro, and assets priced in Euros?
At the current €1.24 to the dollar, the Euro has risen by almost 20 per cent against the dollar in the past 12 months.
The pound’s rise in percentage terms has been significantly less, at a mere 12 per cent.
And, to round it out, the pound remains more than 20% weaker against the Euro compared to the heady days of mid-2015, when Remain was still the real world that people were allowed to live in, and Brexit just a trouble-maker’s dream.
All of which means, that if you put the analyst’s caveats in a different context, what we are really seeing in currency markets at the moment is a story of Euro strength and dollar weakness combined.
Moving away from the microcosmic short-termism of markets, and London’s irrelevant focus on the pound, this actually makes some sense. Endemic weaknesses in the Eurozone’s political structure have always allowed Euro bears to double down on bad economic news. But there’s no bad economic news around for them to double down on at all at the moment.
The Eurozone economy is in significant growth, the momentum for that has been building for some time, and Mario Draghi is showing no keenness to monkey around with interest rates.
On the other hand, although the US economy is also running strong, as indeed Donald Trump boasted it would under his watch, there’s still plenty to keep the dollar bulls nervous. One obvious source of uncertainty are the mixed signals coming from the Trump administration itself.
Mr Mnuchin talks at one moment over at the Davos summit, of how dollar weakness is “good for us.” But Mr Trump at the same conference has been talking about his ultimate desire for a “strong” dollar. These two playmakers may indeed have different timeframes in mind, but the message markets are getting remains somewhat unclear.
Perhaps more significantly there’s the position of the US dollar as the world’s reserve currency. In times of political stability, this is all well and good, and can have a multiplier effect for the dollar bulls.
But, as the cliché has it, markets hate uncertainty, and there’s been plenty of that around lately, not the least of which was the temporary shut-down of the US government itself.
International faith in the US’s political institutions is beginning to be openly questioned at the highest levels, there’s a new Trump appointee taking the reins at the Fed, missiles are flying around in the South China Sea, nearly 70 years of US policy in the Middle East has been overturned with the recognition of Jerusalem as the capital of Israel, and President Trump’s tax policy hardly romped through the legislature with gay abandon.
As a result, speculation in the market is that the big holders of US currency, other foreign governments, have been off-loading in some significant volume. And that would make sense because, the only rational reason for the dollar’s weakness in this time of strong US and global growth is that there are more sellers and buyers out there.
And in simple terms, it seems that currency traders at the moment see more reasons to sell the US dollar than they do to sell the Euro. As for the pound, it’s a nice sideshow, but as a global economic bellwether it’s a long way down the field.