The Washington impasse may lead to further Euro strength

In an epic reversal of fortunes, the Eurozone is starting to look like a safe haven to some.

It’s been a pretty quiet year in the major currency markets. Euro vs the USD is the most actively traded currency pair in the 5 trillion USD a day market, and this year its range has been pretty muted, with a high on 1 February of 1.3711 and a low of 1.2746 on 4 April. As I write, on 21 October, the current price is 1.3680, so only a hair’s breadth away from the year’s highs.

The USD was already suffering as a result of the Fed’s "no-taper" shocker in September and we know what China felt about Washington’s stand-off and brinkmanship with the debt ceiling; last week saw China’s ex-deputy head of FX regulation opining that China should cut its holdings of US Treasuries in the medium to long term and the ECB’s Nowotny chipping in to say that the Euro will play an increasing role as a reserve currency.

The dollar’s trouble is that it now seems highly unlikely that the Fed will stop printing money in the near future. The messy denouement of the Washington show means that we will now be subject to another four or maybe even six months of rather unsettling uncertainty.

Although Congress has extended to debt limit to 7 February, the US Treasury could then start to use "extraordinary" accounting measures to live from hand-to-mouth for a few more weeks, as it started doing this year in May, finding some USD 300bn tucked away to prolong the real debt limit deadline to 17 October (ish). The seasonal shape of US Treasury receipts and payments suggests it will only take a couple of months or so to use up USD 300bn this time, only getting them through to April.

This is neither "nowt nor summat", as we say in Yorkshire. It’s not a short enough time for consumers, corporations and the Fed to feel this is all going to be behind us soon, and it’s not far enough away for everyone to think "whatever, I’ll forget about Washington for a year", say. It’s just about the worst timescale one can imagine.

Consumers will put off purchases, employers will hesitate to hire - in both cases probably not catastrophically, but enough to take the edge off growth - 0.5 per cent in Q4 2013 and Q1 2014. More importantly for the dollar’s fortunes the Fed now seems highly unlikely to taper before its March meeting, and there must even be some doubt over that now.

The Fed’s key data points are going to be unreliable. We’re now going to see September’s employment report on 22 October, but the market’s reaction function will be heavily skewed: if the numbers are weak, then they’ll be taken to presage an economic dip, if they’re strong they’ll be discounted as dating from before Washington’s antics. The next employment report, for October, will now come out on 8 November and the "household survey" used to calculate the unemployment rate will have to conducted retrospectively - so that will be tainted, and also subject to the same interpretation bias. This all means it’ll be January before the Fed might feel it has "clean" jobs data to analyse.

In an epic reversal of fortunes, the shutdown/debt ceiling debate has given even the Euro some semblance of safe-haven status and thrown into stark relief the contrast between the philosophies of the Fed and the ECB.

With the OMT still doing its job as a virtual sticking plaster, and a Grand Coalition in the making in Germany, there seems little reason why EUR/USD can’t climb towards 1.40 or above before Christmas. That in turn will make the ECB very uneasy, as the Eurozone is flirting with deflation, so a rate cut and/or another LTRO seems very likely-probably at the December meeting.

US Federal Reserve Chairman Ben Bernanke reads the FT during the annual World Bank - IMF meetings in Washington, DC. Photograph: Jim Watson/Getty Images.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

Getty
Show Hide image

"We repealed, then forgot": the long shadow of Section 28 homophobia

Why are deeply conservative views about the "promotion" of homosexuality still being reiterated to Scottish school pupils? 

Grim stories of LGBTI children being bullied in school are all too common. But one which emerged over the weekend garnered particular attention - because of the echoes of the infamous Section 28, nearly two decades after it was scrapped.

A 16-year-old pupil of a West Lothian school, who does not wish to be named, told Pink News that staff asked him to remove his small rainbow pride badge because, though they had "no problem" with his sexuality, it was not appropriate to "promote it" in school. It's a blast from the past - the rules against "promoting" homosexuality were repealed in 2000 in Scotland, but the long legacy of Section 28 seems hard to shake off. 

The local authority responsible said in a statement that non-school related badges are not permitted on uniforms, and says it is "committed to equal rights for LGBT people". 

The small badge depicted a rainbow-striped heart, which the pupil said he had brought back from the Edinburgh Pride march the previous weekend. He reportedly "no longer feels comfortable going to school", and said homophobia from staff members felt "much more scar[y] than when I encountered the same from other pupils". 

At a time when four Scottish party leaders are gay, and the new Westminster parliament included a record number of LGBTQ MPs, the political world is making progress in promoting equality. But education, it seems, has not kept up. According to research from LGBT rights campaigners Stonewall, 40 per cent of LGBT pupils across the UK reported being taught nothing about LGBT issues at school. Among trans students, 44 per cent said school staff didn’t know what "trans" even means.

The need for teacher training and curriculum reform is at the top of campaigners' agendas. "We're disappointed but not surprised by this example," says Jordan Daly, the co-founder of Time for Inclusive Education [TIE]. His grassroots campaign focuses on making politicians and wider society aware of the reality LGBTI school students in Scotland face. "We're in schools on a monthly basis, so we know this is by no means an isolated incident." 

Studies have repeatedly shown a startling level of self-harm and mental illness reported by LGBTI school students. Trans students are particularly at risk. In 2015, Daly and colleagues began a tour of schools. Shocking stories included one in which a teacher singled out a trans pupils for ridicule in front of the class. More commonly, though, staff told them the same story: we just don't know what we're allowed to say about gay relationships. 

This is the point, according to Daly - retraining, or rather the lack of it. For some of those teachers trained during the 1980s and 1990s, when Section 28 prevented local authorities from "promoting homosexuality", confusion still reigns about what they can and cannot teach - or even mention in front of their pupils. 

The infamous clause was specific in its homophobia: the "acceptability of homosexuality as a pretended family relationship" could not be mentioned in schools. But it's been 17 years since the clause was repealed in Scotland - indeed, it was one of the very first acts of the new Scottish Parliament (the rest of the UK followed suit three years later). Why are we still hearing this archaic language? 

"We repealed, we clapped and cheered, and then we just forgot," Daly says. After the bitter campaign in Scotland, in which an alliance of churches led by millionaire businessman Brian Souter poured money into "Keeping the Clause", the government was pleased with its victory, which seemed to establish Holyrood as a progressive political space early on in the life of the parliament. But without updating the curriculum or retraining teaching staff, Daly argues, it left a "massive vacuum" of uncertainty. 

The Stonewall research suggests a similar confusion is likely across the UK. Daly doesn't believe the situation in Scotland is notably worse than in England, and disputes the oft-cited allegation that the issue is somehow worse in Scotland's denominational schools. Homophobia may be "wrapped up in the language of religious belief" in certain schools, he says, but it's "just as much of a problem elsewhere. The TIE campaign doesn't have different strategies for different schools." 

After initial disappointments - their thousands-strong petition to change the curriculum was thrown out by parliament in 2016 - the campaign has won the support of leaders such as Nicola Sturgeon and Kezia Dugdale, and recently, the backing of a majority of MSPs. The Scottish government has set up a working group, and promised a national strategy. 

But for Daly, who himself struggled at a young age with his sexuality and society's failure to accept it, the matter remains an urgent one.  At just 21, he can reel off countless painful stories of young LGBTI students - some of which end in tragedy. One of the saddest elements of the story from St Kentigern's is that the pupil claimed his school was the safest place he had to express his identity, because he was not out at home. Perhaps for a gay pupil in ten years time, that will be a guarantee. 

0800 7318496