COMMENT: Bankers declare war on the currency dealers

COMMENT: "As things stand, the dollar may retrace the ground that it lost this year against both the yen and the mark. Further gains will be harder to come by"

August is a month for starting wars as well as ending them. Central bankers appear to have joined the generals of the First World War in choosing it as the month for the start of hostilities. Their targets are the dealers who pushed the yen and the mark to such dizzy heights earlier this year. In a triple alliance between the Japanese, American and German central banks, helped by supporting fire from the Swiss National Bank, there was no doubt who is winning the day. The dollar broke through what had been seen as a critical technical support level of about Y94.60 and then advanced a further Y2 in hectic trading yesterday.

The question now is just how far the dollar rally has to go. Already it has gained more than most currency strategists were predicting for weeks, if not months to come. The market now has Y100 yen and DM1.50 in its sights, but there must be considerable doubt over whether the rally can be sustained much beyond those levels.

As we were reminded by a paper published by the Bank of England two weeks ago, foreign exchange markets are more often than not dominated by "epidemics or herd behaviour". Dealers watch what others are doing and copy them if they are successful. It is this feature that the central banks have exploited so successfully in their recent tactics. There are no dealers watched more closely than central banks. Well publicised intervention has clearly convinced traders that there is a lot of money to be lost by betting against the dollar. Dollar weakness has generally been attributed to the US twin budgetary and balance of payments deficits, which have led to a continuous outflow of dollars for so many years. Yen strength has equally been attributed to the Japanese tendency to over-save and to pile up huge surpluses.

In the next year or so, the current account trends look favourable. One of the factors that helped the dollar to strengthen yesterday against the yen was the marked reduction in the Japanese trade balance in July. It had been falling for some time in yen, but because of the appreciation of the yen had been slower to come down in dollar terms. Equally, the US trade deficit is generally expected to fall quite substantially in the months ahead.

The budgetary trends are also more favourable to the US than is generally acknowledged. The US budget deficit is now less than 2 per cent of GDP. There appears to be a real willingness to tackle the deficits that have dogged US public finances since President Reagan cut taxes without commensurate reductions in spending.

Set against this, however, is the long history of dollar depreciation and the doubts that emerged earlier this year about the dollar's long- term future as a reserve currency. As long as the dollar is accepted in this role, there will always be a temptation for the US to consume more than it produces. In the short term, there will also be worries if there is an all-out confrontation this autumn between the Republican Congress and President Clinton over the US budget. Another bearish factor for the dollar is the fact that there is still ample political mileage to be gained from Jap-bashing. In the run-up to the election, the hostility towards Japan that manifested itself in the threatened trade war could again come to the surface. The very strength of the yen may also lead the Japanese to believe they are off the hook, that they can simply carry on with export- led growth in circumstances when they should be energetically deregulating the economy. As things stand, the dollar may retrace the ground that it lost this year against both the yen and the mark. Further gains will be harder to come by.

Dangers on the high-tech trail

MDIS was one of those new issues which had those unlucky enough to believe the hype being peddled by the company's usually reliable City sponsors running for their lawyers. The charge of false prospectus failed to stick. Even so, investors are still seething about being so severely misled. Yesterday the company delivered the coup de grace with its third profits warning since last year's ill-fated flotation.

Hired originally as an archetypal "trophy" chairman designed to bolster the company's credibility, Ian Hay Davison, has been forced into a much more active role. Out goes the chief executive, Jerry Causley, the "visionary" who failed to deliver. Out too goes the company's investment bank, Barings, already in truth well out of it, having unloaded a large part of its stake in the company onto hapless investors during the flotation. Issued at 260p, the shares were yesterday trading at 62.5p.

Whether this is sufficient by way of retribution remains to be seen. Many investors would like to go further but then someone has to stay behind to clear up the mess. Mr Hay Davison believes enough has now been done to make a fresh start and indeed some brokers were cautiously putting the stock back on their buy list after yesterday's fall. None the less, the whole episode is a salutory lesson on the perils of high-technology investment. Those tempted by the feast of high-tech stocks being lined up for flotation on the Alternative Investment Market ignore it at their peril.

Cable still has much to prove

With three of the big cable operators - Telewest, Nynex and General Cable - having now reported interim figures, it is time for a progress report. All are losing big sums, but that is par for the course at this stage of the adventure when the cost of digging up the roads still has the upper hand over revenue-providing subscibers. All have managed to reduce "churn", the rate at which subscribers disconnect from the service, which had been uniformly bad across the UK. Now it is only pretty bad: 30 per cent for General Cable, one of the better-managed operators. All three have also made good progress on their networks.

In sum, all is proceeding as expected. So why do share prices in the sector remain depressed? So poor is the City's appetite for cable that Telewest, by far the biggest player, has apparently decided it will have to raise additional funds in the cable-friendly US to help cut debt and to finance future stages of network-building. In part the problem is cable overload - there have just been too many of these issues. The formula also remains unproven. Cable has been highly successful in the US but Britain is different.

Furthermore, a new long-term threat now looms in the form of competition from digital terrestrial TV: more free or cheap programming alternatives without the need for a satellite dish or a cable connection. While most analysts do not expect much movement on this front before the turn of the century, it remains another negative factor to take on board. In these circumstances a degree of scepticism seems justified. Not until cable begins to show clear signs of better penetration rates, fewer disconnects and faster-growing revenues can these stocks hope for much action.

Suggested Topics
PROMOTED VIDEO
News
REX/Eye Candy
science
News
A photo of Charles Belk being detained by police on Friday 22 August
news
News
i100
Sport
Alexis Sanchez celebrates after scoring his first goal for Arsenal in the Champions League qualifier against Besiktas
sportChilean's first goal for the club secures place in draw for Champions League group stages
Arts and Entertainment
Amis: 'The racial situation in the US is as bad as it’s been since the Civil War'
booksAuthor says he might come back across Atlantic after all
Extras
indybest
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Google Doodle celebrates the 200th birthday of Irish writer Sheridan Le Fanu
tech
Arts and Entertainment
Vinyl demand: a factory making the old-style discs
musicManufacturers are struggling to keep up with the resurgence in vinyl
News
i100
News
In Eternal Sunshine of the Spotless Mind Jim Carrey and Kate Winslett medically erase each other from their memories
scienceTechnique successfully used to ‘reverse’ bad memories in rodents could be used on trauma victims
Arts and Entertainment
Singer Pixie Lott will take part in Strictly Come Dancing 2014, the BBC has confirmed
tv
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

C# Developer (C#, ASP.NET Developer, SQL, MVC, WPF, Real-Time F

£40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...

C# Swift Payment Developer (C#, ASP.NET, .NET, MVC, Authorize.N

£45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...

DevOps Engineer - Linux, Shell, Bash, Solaris, UNIX, Salt-Stack

Negotiable: Harrington Starr: A fast growing Financial Services organisation b...

Trade Desk FIX Analyst - (FIX, SQL, Equities, Support)

£50000 - £60000 per annum + excellent benefits: Harrington Starr: An award-win...

Day In a Page

Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone
Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

What is the appeal of Twitch?

Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

How bosses are making us work harder

As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
Manufacturers are struggling to keep up with the resurgence in vinyl records

Hard pressed: Resurgence in vinyl records

As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

A tale of two writers

Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
Could a later start to the school day be the most useful educational reform of all?

Should pupils get a lie in?

Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
Prepare for Jewish jokes – as Jewish comedians get their own festival

Prepare for Jewish jokes...

... as Jewish comedians get their own festival
SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

A dream come true for SJ Watson

Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
10 best cycling bags for commuters

10 best cycling bags for commuters

Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

Paul Scholes column

Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?