Another fascinating week in the F/X markets, with my forecast of 1.1800 falling quite a way short of the mark as we saw the pound burst through the 1.1940 level at one point on Thursday. At least I managed to get the direction right! The week ended at 1.1910, leaving many licking their lips in anticipation of the magic 1.20 level. More about that later.
The Hangover
David Cameron’s, that is. It must have been hugely dispiriting to arrive back home to a hero’s welcome on his trusty steed to find that all his new lackeys are the same bunch that he’s been trying to ignore for years, those embarrassing Eurosceptics. And worse still, his new best mate Nick disappears off in a sulk, only to reappear later in the week, all guns blazing, letting anyone who cares to listen (including Sarko) what he thinks about this new wave of scepticism and xenophobia.
Fact and Fiction
Fact: The Euro is still in trouble. The currency has accurately reflected this over the past week. The achievements of last weekend’s summit fell way short of solving any of the problems. Indeed it probably created more to worry about. The markets like to see action, not words, and they haven’t seen any yet. The new treaty being entered into by the group of 26 is already starting to show some cracks, with Hungary and the Czech Republic wavering yet again (they already changed their minds once). Nothing is to be announced on this new treaty before March, but the ECB is making it quite clear that they do not want to be promoted to the position of lender of last resort to the European basket cases. On top of this, Angela Merkel is facing growing pressures on the home front. She too is in a coalition, and that may have been the reason behind a conciliatory phone call to DC this week.
Fiction: Sterling is ideally placed to take advantage of this and surge back up towards the levels we used to enjoy up to 2007. Far from it. We have a lot of problems to deal with in the UK economy. I’m writing this during a Christmas visit back to the UK, and can see at first hand what is happening to UK high streets. I’m in a smallish town in Lincolnshire, and at least half of the stores are either boarded up or let on short term contracts to ‘pile it high and sell it cheap’ outlets. UK unemployment is at its highest level for 17 years, and the public deficit is proving to be much more stubborn than George Osborne must have hoped for.
Don’t be greedy
That 1.20 level could easily be a step too far for now. The big boys, international speculators and multinational corporations, are in front of the queue for the best deals in the market. For the likes of you or I to get to buy Euros at 1.20 the rate will probably reed to get to at least 1.21, possibly higher. If the market professionals decide that 1.20 is where they all want to but Euros, or more accurately sell sterling, it will all be done when the rate is at 1.2005, and if there is enough selling of sterling at that level the next stage will see us back at 1.16 or even lower. The best advice I can offer you if you need to convert sterling to Euro is do it early, and be happy with say 1.1850 or 1.19. If you are what I call ‘mini speculators’, and have money in the UK that you will eventually need to convert, you can take a longer term view, but be prepared to be disappointed.
Hols
Any F/X trader worth his salt will have started his holiday break by now, and the markets traditionally stagnate over this period. With this in mind I’m going to take a break this week, and will return to action to launch the New Year. Between now and then please have a great time, and try to forget about politics and economics, as I certainly will!
Saturday, December 17, 2011
Saturday, December 10, 2011
F/X weekly comment
Unless you've had your heads completely buried in the sand this week you'll probably have noticed that there has been a bit of a dust-up on the UK/Euro front over the last few days. If not, you'd hardly be likely to be reading this anyway, so I will assume that you have at least heard David Cameron's name mentioned a few times...
SuperCam - Hero or Villain?
I think you might have guessed which side of the argument I'm on. I am quite genuinely astonished at the crass hypocrisy of opposition (and some coalition) politicians complaining that David Cameron has marginalised the UK and despatched us to the outer wildernesses of Europe where no-one will listen to us and our views on the Euro will not be taken into account.
What on earth was the alternative? Can you imagine the furore if he had signed up with the rest of the lemmings at the cliff top? I doubt very much if he would have been let back into the country, let alone the houses of parliament. Sovereignty surrendered, budgets to be submitted to Brussels? Good grief, we might even have to convert to the Euro. Get real you lot, he had no choice whatsoever.
Nobby no-mates.
Let's not pretend otherwise, we are not popular in Europe now, although I suspect a few million European citizens might secretly be on our side. The sight of Sarkozy blanking Cameron in Brussels on Friday evening was a scene of pure childish petulance. I for one prefer my political leaders to have maturity and stature. Sarkozy lacks all three (stature twice).
For a while on Friday we were not alone. A few other EU but non Euro members' initial reaction was 'Your having a Turkish'*, but they soon succumbed to the herd mentality and toed the line. Countries like Ireland, Greece and Portugal had no choice of course. Firstly they are already in the Euro, and secondly they desperately need the continuing support of the Eurozone. But alone in Europe we now definitely are. There are 27 members of the EU, and 26 of them have signed up for the new financial treaty.
Should we care?
Unfortunately yes. There was no way we could actually gain from this mess that the Euro has got itself into. There is no way we can agree to be a part of this group, but being isolated will very probably harm us. We will not be able to influence any course of action that they decide to take regarding the financial stability of the Euro, but the UK is an absolutely vital part of Europe, and as full members of the European Union we maintain a very large say in what goes on. So large in fact that nothing can be done to force us into any measures we don't want to take, even by the 26 Eurozone (and wannabees) countries. Having said that though, the lemmings will have the power to act in ways contrary to our best interests.
What now?
They will continue to muddle through, at best. Precious little came out of last week in terms of saving the Euro. Germany and France may look like willing bedmates, but there is a lot of bickering going on under the sheets. The much vaunted new treaty doesn't actually introduce any new rules or constraints, it just repeats existing rules that everyone, including France, has been breaking consistently over the last ten years. Do we really expect anything to change? One commentator got it right when comparing it to having a speed limit on a motorway that no-one ever enforces. Now apparently there will be traffic police. We'll see. Maybe the Greeks will start paying their motorway toll fees. And maybe not.
1.1800 for me next week.
* Turkish bath (= laugh)
SuperCam - Hero or Villain?
I think you might have guessed which side of the argument I'm on. I am quite genuinely astonished at the crass hypocrisy of opposition (and some coalition) politicians complaining that David Cameron has marginalised the UK and despatched us to the outer wildernesses of Europe where no-one will listen to us and our views on the Euro will not be taken into account.
What on earth was the alternative? Can you imagine the furore if he had signed up with the rest of the lemmings at the cliff top? I doubt very much if he would have been let back into the country, let alone the houses of parliament. Sovereignty surrendered, budgets to be submitted to Brussels? Good grief, we might even have to convert to the Euro. Get real you lot, he had no choice whatsoever.
Nobby no-mates.
Let's not pretend otherwise, we are not popular in Europe now, although I suspect a few million European citizens might secretly be on our side. The sight of Sarkozy blanking Cameron in Brussels on Friday evening was a scene of pure childish petulance. I for one prefer my political leaders to have maturity and stature. Sarkozy lacks all three (stature twice).
For a while on Friday we were not alone. A few other EU but non Euro members' initial reaction was 'Your having a Turkish'*, but they soon succumbed to the herd mentality and toed the line. Countries like Ireland, Greece and Portugal had no choice of course. Firstly they are already in the Euro, and secondly they desperately need the continuing support of the Eurozone. But alone in Europe we now definitely are. There are 27 members of the EU, and 26 of them have signed up for the new financial treaty.
Should we care?
Unfortunately yes. There was no way we could actually gain from this mess that the Euro has got itself into. There is no way we can agree to be a part of this group, but being isolated will very probably harm us. We will not be able to influence any course of action that they decide to take regarding the financial stability of the Euro, but the UK is an absolutely vital part of Europe, and as full members of the European Union we maintain a very large say in what goes on. So large in fact that nothing can be done to force us into any measures we don't want to take, even by the 26 Eurozone (and wannabees) countries. Having said that though, the lemmings will have the power to act in ways contrary to our best interests.
What now?
They will continue to muddle through, at best. Precious little came out of last week in terms of saving the Euro. Germany and France may look like willing bedmates, but there is a lot of bickering going on under the sheets. The much vaunted new treaty doesn't actually introduce any new rules or constraints, it just repeats existing rules that everyone, including France, has been breaking consistently over the last ten years. Do we really expect anything to change? One commentator got it right when comparing it to having a speed limit on a motorway that no-one ever enforces. Now apparently there will be traffic police. We'll see. Maybe the Greeks will start paying their motorway toll fees. And maybe not.
1.1800 for me next week.
* Turkish bath (= laugh)
Saturday, December 3, 2011
F/X weekly comment
Dazzling 'price action' this week. Instead of finishing unchanged against the Euro at 1.1670 we ended up miles away at 1.1650 At one stage it looked as though I might be claiming a rare success, when sterling defied all odds and went bounding into 1.17 territory after the Autumn Statement, quite the opposite direction proffered by most commentators apart from me. But lo and behold, the rally petered out and the market settled back into its recent snooze pattern, waiting for something really exciting to happen. And happen it just might...
The Heavy Mob
The gang held a reunion during the week with surprise joint action by the world's central banks. The FED, the European Central Bank and the central banks of the UK, Canada, Japan and Switzerland agreed to cut the cost of existing dollar credit terms by 0.5% in a bid to help European banks damaged by the Eurozone debt crisis. China also said it would free up money for its banks to lend. This pushed sterling down against the Euro, dampening Euro weakness.
Same old Sterling figures
UK manufacturing data out this week did little to impress the market despite being marginally higher than forecast at 47.6. Below 50 is bad, above 50 is good, so these figures continue to show the tough climate the UK economy is facing. This latest round of data is likely to weaken sterling in the short term as the market increases their expectation for further QE early in the new year.
AAA (not the batteries)
The Autumn Statement was actually seen internationally as setting out a credible plan to tackle the budget deficit, and is likely to help the UK retain its AAA status and encourage investors to hold UK government bonds. This is therefore likely to give some support to the pound despite the threat of further quantitative easing as the economy looks set to hit another recession.
Note the balancing tendencies of the last two paras!
The Doomsday Scenario
After all the toing and froing (I know that looks really odd, but Google says it doesn't need a hyphen), the future of the Euro remains apparently in the balance. Olli Rehn, EU economic and monetary affairs commissioner, warned of a 10 day deadline to the save the Euro. The alternative could potentially the breakup of the Eurozone and create serious issues for the UK economy (and a few others I'd wager). Yesterday (Thursday) Merv and the boys released their Financial Stability Report in which it calls the current mess "exceptionally threatening". Merv then said that the central bank action was only temporary relief and confirmed that his henchmen had contingency plans in case of a breakup of the Eurozone. Just to add to the mix, Sarkozy (he's half of Merkozy) gave a major speech in Toulon, in which he said that the Euro could not continue to exist unless Eurozone economies
pulled together. He said that he would meet with German Chancellor Angela Merkel on Monday to discuss steps to ensure the euro is saved. Is this the realisation of the masterplan?
Actually, I don't think so, but it is fantastic theatre. Sterling's woes are on the backburner at present. Euro woes are bigger and better. Much more fun. I'm buying small amounts of Euros every time the rate goes above 1.17, but then I'm a financial coward at heart.
The Heavy Mob
The gang held a reunion during the week with surprise joint action by the world's central banks. The FED, the European Central Bank and the central banks of the UK, Canada, Japan and Switzerland agreed to cut the cost of existing dollar credit terms by 0.5% in a bid to help European banks damaged by the Eurozone debt crisis. China also said it would free up money for its banks to lend. This pushed sterling down against the Euro, dampening Euro weakness.
Same old Sterling figures
UK manufacturing data out this week did little to impress the market despite being marginally higher than forecast at 47.6. Below 50 is bad, above 50 is good, so these figures continue to show the tough climate the UK economy is facing. This latest round of data is likely to weaken sterling in the short term as the market increases their expectation for further QE early in the new year.
AAA (not the batteries)
The Autumn Statement was actually seen internationally as setting out a credible plan to tackle the budget deficit, and is likely to help the UK retain its AAA status and encourage investors to hold UK government bonds. This is therefore likely to give some support to the pound despite the threat of further quantitative easing as the economy looks set to hit another recession.
Note the balancing tendencies of the last two paras!
The Doomsday Scenario
After all the toing and froing (I know that looks really odd, but Google says it doesn't need a hyphen), the future of the Euro remains apparently in the balance. Olli Rehn, EU economic and monetary affairs commissioner, warned of a 10 day deadline to the save the Euro. The alternative could potentially the breakup of the Eurozone and create serious issues for the UK economy (and a few others I'd wager). Yesterday (Thursday) Merv and the boys released their Financial Stability Report in which it calls the current mess "exceptionally threatening". Merv then said that the central bank action was only temporary relief and confirmed that his henchmen had contingency plans in case of a breakup of the Eurozone. Just to add to the mix, Sarkozy (he's half of Merkozy) gave a major speech in Toulon, in which he said that the Euro could not continue to exist unless Eurozone economies
pulled together. He said that he would meet with German Chancellor Angela Merkel on Monday to discuss steps to ensure the euro is saved. Is this the realisation of the masterplan?
Actually, I don't think so, but it is fantastic theatre. Sterling's woes are on the backburner at present. Euro woes are bigger and better. Much more fun. I'm buying small amounts of Euros every time the rate goes above 1.17, but then I'm a financial coward at heart.
Saturday, November 26, 2011
F/X Weekly Comment
For the second week in a row sterling has ended almost completely unchanged against the Euro at 1.1670. This could be the calm before the storm, and there certainly were some squalls during the week:
Sterling
Activity on the sterling front was dominated by what has been happening in the Eurozone again this week, but there were a couple of noteworthy events. The pound was hampered by the release of the minutes of the last BoE meeting which showed a 9-0 vote to leave interest rates on hold in the UK, and there is a feeling amongst commentators that a couple of committee members are looking for the possibility of more QE in the not too far distant future. This is generally seen as a negative on the country’s currency. There is large expectation across the board for economic conditions to worsen in the UK as consumers continue to be squeezed by rising prices and higher costs whilst trouble in the Euro zone is likely to weaken export demand next year.
Another of Merv's henchmen, MPC member Martin Weale warned in a speech this week that the UK’s economic recovery would take as long as 5 years, adding to the pressure on sterling. Investors were also completely confused by the UK government’s plans to ease youth unemployment, at the same time avoiding any explanation of where the funding will come from.
Fun and Games in Euroland
The dear old Euro had a torrid time during the week. An unexpected source of more pressure for single currency came in the form of a huge shock in the German Bond auction and weaker than expected Eurozone industrial orders. The German government was unable to sell about 35% of the €6bn 10 year bonds it offered to the market, managing to sell just €3.9bn of debt. It could of course have offered more return to in investors, but chose not to. This provided the clearest sign yet that even the strongest Eurozone country is at growing risk of crisis contagion. Italy didn't do any better at their bond auction, having no choice but to pay the 6.5% demanded by investors, and Portugal's rating was downgraded to 'junk'. These setbacks came as Fitch Ratings issued a warnings that France’s AAA credit rating would be at risk if things don't start to improve soon.
The Eurozone industrial production numbers came in much worse than expected, down a massive 6.4% against expectations of down 2.4%. The euro fell against the dollar, and also gave away earlier gains against the pound to end up in exactly the same position as last week.
What next?
Well next week we have the long awaited autumn statement from George Osborne. Anyone of sane mind will have very low expectations that this will provide any boost for sterling, but I'm willing to stand up and be that lunatic. I once worked for a tyrant of a manager in foreign exchange, who never tired of expounding his theory of contrarianism. 'You'll never make any money betting the same way as everybody else' he used to say. To be fair, he seemed to have the knack of knowing when to do nothing and when to back his own words with great success. I'm not sure I have the same knack, but let's go for it. I'm still bullish for sterling, and I think the market might just find that the message G.O. delivers next week is not quite as bad as expected.
We'll see.... I think we may dip below 1.1600 during the week, and then start to build from there.
Sterling
Activity on the sterling front was dominated by what has been happening in the Eurozone again this week, but there were a couple of noteworthy events. The pound was hampered by the release of the minutes of the last BoE meeting which showed a 9-0 vote to leave interest rates on hold in the UK, and there is a feeling amongst commentators that a couple of committee members are looking for the possibility of more QE in the not too far distant future. This is generally seen as a negative on the country’s currency. There is large expectation across the board for economic conditions to worsen in the UK as consumers continue to be squeezed by rising prices and higher costs whilst trouble in the Euro zone is likely to weaken export demand next year.
Another of Merv's henchmen, MPC member Martin Weale warned in a speech this week that the UK’s economic recovery would take as long as 5 years, adding to the pressure on sterling. Investors were also completely confused by the UK government’s plans to ease youth unemployment, at the same time avoiding any explanation of where the funding will come from.
Fun and Games in Euroland
The dear old Euro had a torrid time during the week. An unexpected source of more pressure for single currency came in the form of a huge shock in the German Bond auction and weaker than expected Eurozone industrial orders. The German government was unable to sell about 35% of the €6bn 10 year bonds it offered to the market, managing to sell just €3.9bn of debt. It could of course have offered more return to in investors, but chose not to. This provided the clearest sign yet that even the strongest Eurozone country is at growing risk of crisis contagion. Italy didn't do any better at their bond auction, having no choice but to pay the 6.5% demanded by investors, and Portugal's rating was downgraded to 'junk'. These setbacks came as Fitch Ratings issued a warnings that France’s AAA credit rating would be at risk if things don't start to improve soon.
The Eurozone industrial production numbers came in much worse than expected, down a massive 6.4% against expectations of down 2.4%. The euro fell against the dollar, and also gave away earlier gains against the pound to end up in exactly the same position as last week.
What next?
Well next week we have the long awaited autumn statement from George Osborne. Anyone of sane mind will have very low expectations that this will provide any boost for sterling, but I'm willing to stand up and be that lunatic. I once worked for a tyrant of a manager in foreign exchange, who never tired of expounding his theory of contrarianism. 'You'll never make any money betting the same way as everybody else' he used to say. To be fair, he seemed to have the knack of knowing when to do nothing and when to back his own words with great success. I'm not sure I have the same knack, but let's go for it. I'm still bullish for sterling, and I think the market might just find that the message G.O. delivers next week is not quite as bad as expected.
We'll see.... I think we may dip below 1.1600 during the week, and then start to build from there.
Saturday, November 19, 2011
F/X Weekly comment
Comparative boredom this week, but after all the fun and games recently the markets are probably due a rest. We end the week at 1.1680, a mere 10 points higher than last week's 1.1670. There was the promise of fireworks this week, but a series of damp squibs failed to ignite traders deal buttons.
Sterling
Merv was in his element this week with the QIR, the Quarterly Inflation Report, where he gets a chance to don his gloomy face and talk down sterling at every opportunity. In short, he described a deterioration in economic conditions since the last report and highlighted the Eurozone’s debt crisis as ‘the single biggest risk’ to the continuance of British economic expansion. Cheer up Merv, it can't be that bad, can it?
UK data this week indicated that the number of unemployed rose by 129,000 in the three months to the end of September, taking the UK jobless total to 2.62million. The figures also showed that over 1million 16 to 24 year olds are jobless; this is the first time since records began that youth unemployment in the UK has risen above the disturbing 1m level. Unemployed teenagers are a lot more of a problem than unemployed 50 year olds.
Oddly, UK retail sales in October rose by 0.6% instead of falling as expected with consumers facing cost pressures on all sides. It is possible that this is a result of pre Christmas price discounting in the shops, but that could make Januaries figures look sick if there is no money left in the purse for the sales.
Europe - Mario #1
Draghi, that is. He seems to be a decent 'no nonsense' type of character who gets stuck in when necessary. He made it quite plain this week that he is unhappy that the European leaders who agreed to boost the Euro bailout fund from €440bn to €1 trillion or so have so far failed to come up with any explanation of how they are going to achieve this juggling act. Probably not helped by an inscrutable Chinese gentleman telling them to sort their lives out before he puts his hand in his pocket.
Europe - Mario #2
Monti of course. The new Italian PM has now won confidence votes in both houses of parliament for his new government including bankers, CEOs and university professors. Good luck to him, I say. Perhaps he should hire Berlusconi as a distraction.
Europe - Spain
What they need is a Mario. Mario Draghi did get involved this week, with intervention by the ECB to buy Italian and Spanish government bonds on Friday helped keep bond yields from rising too far. By early afternoon Spanish 10-year bonds were yielding 6.35% while Italian 10-year bond yields were at 6.67%. On Thursday, Spain's borrowing cost at an auction of 10-year bonds was almost 7%, which is a level seen as unsustainable.
Spain is currently preparing for a general election on Sunday. Any prices on the ruling Socialist party still being in office next week?
What next?
I'm still bullish for sterling. I think that the Euro has more pain to endure yet, even if it doesn't prove fatal. I'll leave the next bit in from last week:
I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Sterling
Merv was in his element this week with the QIR, the Quarterly Inflation Report, where he gets a chance to don his gloomy face and talk down sterling at every opportunity. In short, he described a deterioration in economic conditions since the last report and highlighted the Eurozone’s debt crisis as ‘the single biggest risk’ to the continuance of British economic expansion. Cheer up Merv, it can't be that bad, can it?
UK data this week indicated that the number of unemployed rose by 129,000 in the three months to the end of September, taking the UK jobless total to 2.62million. The figures also showed that over 1million 16 to 24 year olds are jobless; this is the first time since records began that youth unemployment in the UK has risen above the disturbing 1m level. Unemployed teenagers are a lot more of a problem than unemployed 50 year olds.
Oddly, UK retail sales in October rose by 0.6% instead of falling as expected with consumers facing cost pressures on all sides. It is possible that this is a result of pre Christmas price discounting in the shops, but that could make Januaries figures look sick if there is no money left in the purse for the sales.
Europe - Mario #1
Draghi, that is. He seems to be a decent 'no nonsense' type of character who gets stuck in when necessary. He made it quite plain this week that he is unhappy that the European leaders who agreed to boost the Euro bailout fund from €440bn to €1 trillion or so have so far failed to come up with any explanation of how they are going to achieve this juggling act. Probably not helped by an inscrutable Chinese gentleman telling them to sort their lives out before he puts his hand in his pocket.
Europe - Mario #2
Monti of course. The new Italian PM has now won confidence votes in both houses of parliament for his new government including bankers, CEOs and university professors. Good luck to him, I say. Perhaps he should hire Berlusconi as a distraction.
Europe - Spain
What they need is a Mario. Mario Draghi did get involved this week, with intervention by the ECB to buy Italian and Spanish government bonds on Friday helped keep bond yields from rising too far. By early afternoon Spanish 10-year bonds were yielding 6.35% while Italian 10-year bond yields were at 6.67%. On Thursday, Spain's borrowing cost at an auction of 10-year bonds was almost 7%, which is a level seen as unsustainable.
Spain is currently preparing for a general election on Sunday. Any prices on the ruling Socialist party still being in office next week?
What next?
I'm still bullish for sterling. I think that the Euro has more pain to endure yet, even if it doesn't prove fatal. I'll leave the next bit in from last week:
I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Friday, November 11, 2011
F/X weekly comment
So, we did see 1.17 after all this week. We didn't quite manage to hang on to it, but it was good to see while it was there. The quiet holiday markets finally closed at 1.1670. It's been another fun week at the office, with plenty to look back on. Before I do, I was distracted earlier by some proof of an old adage that I trot out occasionally. That is that if you owe your bank a relatively large sum of money, you have a problem. If however you owe your bank a stonkingly large sum of money, your bank has a problem.
Sean Quinn, a 64-year-old Irish ex property magnate, was declared bankrupt this week in Belfast over an alleged €2.8 billion debt owed to Anglo Irish Bank. It is believed to be one of the biggest bankruptcy orders of its kind ever made in either Ireland or Britain. It seems he has decided that Belfast is a better place to go bust than Dublin, as he can start up again in 12 months time, as opposed to 12 years in the republic...
Sterling
Does actually get a mention this week. As had been expected, the Bank of England voted to keep interest rates on hold and keep the QE/asset purchase programme/money printing on hold for now. Markets will now focus on next week's inflation report which could reveal the extent of weak economic fundamentals in the UK, and this could mean more QE in December. We had another set of mediocre economic data with a 2% monthly increase in manufacturing production offset by zero growth for the broader industrial production. HBOS reported higher house prices in October while the RICS said they were falling. NIESR’s (The National Institute of Economic and Social Research) estimated the growth of gross domestic product in the year to October at 0.5%.
.
The Italian Stallion - Silvio, Silvio, wherefore art thou?
I'm not saying you heard it here first, but you did hear it here last week. The knives did indeed come out, and Bunga Bunga looks set to head off into the sunset, leaving centre stage to the :
Super Mario Brothers
Yes, we now have two Marios from whom to extract the Michael. Former European Union Competition Commissioner Mario Monti is ready to take power, assuming that Berlusconi plays ball on Monday. Monti will join Draghi in trying to work out a solution to this mess.
Greece also resolved its leadership issues and former European Central Bank Vice President Lucas Papademos is ready to take office as prime minister.
Anyone else think that drafting in two ex Europe bigwigs smacks a little of desperation?
What next?
What next indeed. I was discussing this with a client this afternoon. I feel the need to confess my sins as an ex international banker to new clients, as they'll probably find out eventually anyway.
I'm actually feeling some glimmer of optimism for sterling at present. I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Sean Quinn, a 64-year-old Irish ex property magnate, was declared bankrupt this week in Belfast over an alleged €2.8 billion debt owed to Anglo Irish Bank. It is believed to be one of the biggest bankruptcy orders of its kind ever made in either Ireland or Britain. It seems he has decided that Belfast is a better place to go bust than Dublin, as he can start up again in 12 months time, as opposed to 12 years in the republic...
Sterling
Does actually get a mention this week. As had been expected, the Bank of England voted to keep interest rates on hold and keep the QE/asset purchase programme/money printing on hold for now. Markets will now focus on next week's inflation report which could reveal the extent of weak economic fundamentals in the UK, and this could mean more QE in December. We had another set of mediocre economic data with a 2% monthly increase in manufacturing production offset by zero growth for the broader industrial production. HBOS reported higher house prices in October while the RICS said they were falling. NIESR’s (The National Institute of Economic and Social Research) estimated the growth of gross domestic product in the year to October at 0.5%.
.
The Italian Stallion - Silvio, Silvio, wherefore art thou?
I'm not saying you heard it here first, but you did hear it here last week. The knives did indeed come out, and Bunga Bunga looks set to head off into the sunset, leaving centre stage to the :
Super Mario Brothers
Yes, we now have two Marios from whom to extract the Michael. Former European Union Competition Commissioner Mario Monti is ready to take power, assuming that Berlusconi plays ball on Monday. Monti will join Draghi in trying to work out a solution to this mess.
Greece also resolved its leadership issues and former European Central Bank Vice President Lucas Papademos is ready to take office as prime minister.
Anyone else think that drafting in two ex Europe bigwigs smacks a little of desperation?
What next?
What next indeed. I was discussing this with a client this afternoon. I feel the need to confess my sins as an ex international banker to new clients, as they'll probably find out eventually anyway.
I'm actually feeling some glimmer of optimism for sterling at present. I certainly don't think it will be all one way traffic, but the milestone of 1.20 isn't all that far away, and my holy grail of 1.25 doesn't seem all that far behind it. Not next week though. I think we have to accept quite a few reversals along the way. I think we may dip below 1.1600 during the week, and then start to build from there.
Saturday, November 5, 2011
F/X weekly comment
Some weekends I sit down to write this article and think 'what on earth am I going to write about?'. And then there are weekends like this one where I wonder where to start...
Sterling
Just like last week, forget about sterling. It wasn't in the game this week. It was an innocent bystander.
Greek Farce? Or Greek Tragedy?
Strong elements of both actually. If I were a scriptwriter and came up with this as a plot, I would be worried about being taken seriously. Let's keep to Greece to start with. I'll assume you all know the events that took place over the past 8 days, so I won't bore you with repetition, but I think the events of the week leave us with a clear picture of how Europe works at the moment. The Merkozy partnership sits at the top of the pile, and the only other people who matter are the ones who cause most trouble at any one time. The clear winner this week has been George Papandreou.
Having been summoned to the headmasters study last week to hear his fate (being let off with €150bn of debt), he then had the nerve to announce that he would ask his countrymen if they thought that was good enough, sending Merkozy into an apoplectic rage. I thought they handled it very well though. You couldn't see the bruises when he appeared on telly the next day to announce that he'd changed his mind. His own ministers then felt so sorry for him (or themselves) that he survived the vote of no confidence on Friday night. Maybe it's just that no-one fancies the job. I don't think he'll be around for long though.
The Italian Stallion
Looking increasingly like a knackered old nag, Silvio Berlusconi looks set to take the baton from Papandreou this week. The eternal survivor may just have passed his sell-by date, and he can't buy his way out of this one. Italy has queue jumped Spain to the top of the crisis leader board. Far from benefitting from calmer conditions after the rescued Greek bailout Italian government debt is now trading at 6.4%, well above what is now regarded as a sustainable level. The IMF are going in to take a look at the books (which version I'm not sure). His approval level at home is now down to 22%, which is poor when you think that he owns half of Italy. The sight of Merkozy smirking publicly when asked about Berlusconi has hurt Italian pride. The knives are out.
Super Mario
New ECB supremo Mario Draghi made a dramatic entrance this week, cutting the Euro base rate at his first ever conference. That never happens. The ECB likes to signal well in advance its intentions regarding interest rates. It doesn't like surprises. The problem though is that his predecessor had set the bank on a course to raise rates in line with the impending economic recovery. He was of course 'a bit previous'. The recovery hasn't arrived. Back to square one, and maybe beyond.
What next?
What this is all about of course is what will happen to the £/€ exchange rate? Maybe my experience this week will give you a clue. Following my own advice last week, and assuming that we would be in for more of the same old rubbish from sterling whenever it is given a chance to shine, I bought some Euros online on Tuesday at a rate of 1.1370. Congratulating myself on my decisiveness, I then watched the Euro dive (rate go up), and on Thursday bought some more at 1.1550. So mixed feelings overall. I did at least prove half of my theorem on exchange rate dealing. That is, deal and the rate will go up; don't deal and the rate will go down.
The week ended at 1.1620, so with the size deal I was doing (rather small I'm afraid), the rate I would get now would probably be about 1.1510. Unfortunately I don't have unlimited resources, so I won't be able to continue the experiment. That might mean that we see 1.1700 this week, but don't bet on it.
Sterling
Just like last week, forget about sterling. It wasn't in the game this week. It was an innocent bystander.
Greek Farce? Or Greek Tragedy?
Strong elements of both actually. If I were a scriptwriter and came up with this as a plot, I would be worried about being taken seriously. Let's keep to Greece to start with. I'll assume you all know the events that took place over the past 8 days, so I won't bore you with repetition, but I think the events of the week leave us with a clear picture of how Europe works at the moment. The Merkozy partnership sits at the top of the pile, and the only other people who matter are the ones who cause most trouble at any one time. The clear winner this week has been George Papandreou.
Having been summoned to the headmasters study last week to hear his fate (being let off with €150bn of debt), he then had the nerve to announce that he would ask his countrymen if they thought that was good enough, sending Merkozy into an apoplectic rage. I thought they handled it very well though. You couldn't see the bruises when he appeared on telly the next day to announce that he'd changed his mind. His own ministers then felt so sorry for him (or themselves) that he survived the vote of no confidence on Friday night. Maybe it's just that no-one fancies the job. I don't think he'll be around for long though.
The Italian Stallion
Looking increasingly like a knackered old nag, Silvio Berlusconi looks set to take the baton from Papandreou this week. The eternal survivor may just have passed his sell-by date, and he can't buy his way out of this one. Italy has queue jumped Spain to the top of the crisis leader board. Far from benefitting from calmer conditions after the rescued Greek bailout Italian government debt is now trading at 6.4%, well above what is now regarded as a sustainable level. The IMF are going in to take a look at the books (which version I'm not sure). His approval level at home is now down to 22%, which is poor when you think that he owns half of Italy. The sight of Merkozy smirking publicly when asked about Berlusconi has hurt Italian pride. The knives are out.
Super Mario
New ECB supremo Mario Draghi made a dramatic entrance this week, cutting the Euro base rate at his first ever conference. That never happens. The ECB likes to signal well in advance its intentions regarding interest rates. It doesn't like surprises. The problem though is that his predecessor had set the bank on a course to raise rates in line with the impending economic recovery. He was of course 'a bit previous'. The recovery hasn't arrived. Back to square one, and maybe beyond.
What next?
What this is all about of course is what will happen to the £/€ exchange rate? Maybe my experience this week will give you a clue. Following my own advice last week, and assuming that we would be in for more of the same old rubbish from sterling whenever it is given a chance to shine, I bought some Euros online on Tuesday at a rate of 1.1370. Congratulating myself on my decisiveness, I then watched the Euro dive (rate go up), and on Thursday bought some more at 1.1550. So mixed feelings overall. I did at least prove half of my theorem on exchange rate dealing. That is, deal and the rate will go up; don't deal and the rate will go down.
The week ended at 1.1620, so with the size deal I was doing (rather small I'm afraid), the rate I would get now would probably be about 1.1510. Unfortunately I don't have unlimited resources, so I won't be able to continue the experiment. That might mean that we see 1.1700 this week, but don't bet on it.
Saturday, October 29, 2011
F/X Weekly Comment
Call me alarmist if you like, but I have a sneaking suspicion that in years to come dinner party conversation in financial circles might go along the lines of 'Do you remember the week it all started to fall apart for the Euro? You know, the week when Greece defaulted and the fuse was lit under Italy? Where were you that week?'
Sterling
Forget about sterling. It wasn't in the game this week. It's all about:
Debt; Default; Doubt.
More a case of where to start really. I was very surprised to see M Sarkozy at Carcassonne airport on Tuesday. I am quite certain that he had more pressing things to attend to, and indeed he did turn up in Brussels on Wednesday for a prolonged chat with his Fellow European leaders, or at least Angela Merkel. I understand this chat did last through til breakfast, but am assured that no impropriety was involved, and their main subjects of concern were their Greek and Italian cousins.
As we all know, the Greek cousin lives in a state of constant excess, and is proving to be an embarrassment to the Euro establishment. It might not come as a surprise to you that the answer to this problem is to pay off half of his gambling and drinking tabs, which adds up to approximately €150bn, and then lend him another €100bn to tide him over. Problem solved, for today.
The Italian cousin is a different matter altogether. A bit of a cad (apparently), his boyish charm has led him to enjoy a charmed life, protected when necessary by law changes and widespread fiscal degeneration, to the extent that nobody twigged until recently that he makes the Greek cousin look like a pillar of financial rectitude.
Let's pop back to the real world for a minute. Greece is defaulting. dress it up however you like, but it cannot and will not repay its debts. And it still needs to borrow more. Italy is fooling the markets no longer. It is no surprise to me that on a day when the markets breathed a sigh of relief that at least a dose of realism has been adopted regarding Greece, Italy paid 6.06% on its 10 year debt refinancing, and didn't manage to borrow all that it needed. That is the highest interest rate since the Euro was created. Levels anywhere higher than this are generally rated as unsustainable.
EFSF
Don't worry about the letters. It's not Euro Folly Shall Fail. It's the Euro bailout fund. A huge pot of money to rescue recalcitrant Euro cousins. Merkozy have decided (rightly) that €410bn isn't going to be enough, and that something in excess of €1trillion sounds more like it. How are they going to get from A to B? Two possibilities, firstly get other people to chip in, such as the cash rich Chinese, or leverage. That is using the original pot to borrow more. If that sound a bit like what got us all into this mess in the first place to you... join the club.
What next?
And so we finished the week at 1.1400. Scant change for all the excitement really. I get the impression that the foreign exchange and money markets are beginning to tire of the Euro Circus and the hype that goes with it. If they start to refocus on fundamentals, as they should, we should see calmer markets. Sterling won't benefit much though until Osborne and King get their act in gear and bring in measures designed to bring the UK back into growth - and those measures will have to be shown to be working.
That won't happen by next week, that's for sure. Sterling to remain under 1.1450 for me.
Sterling
Forget about sterling. It wasn't in the game this week. It's all about:
Debt; Default; Doubt.
More a case of where to start really. I was very surprised to see M Sarkozy at Carcassonne airport on Tuesday. I am quite certain that he had more pressing things to attend to, and indeed he did turn up in Brussels on Wednesday for a prolonged chat with his Fellow European leaders, or at least Angela Merkel. I understand this chat did last through til breakfast, but am assured that no impropriety was involved, and their main subjects of concern were their Greek and Italian cousins.
As we all know, the Greek cousin lives in a state of constant excess, and is proving to be an embarrassment to the Euro establishment. It might not come as a surprise to you that the answer to this problem is to pay off half of his gambling and drinking tabs, which adds up to approximately €150bn, and then lend him another €100bn to tide him over. Problem solved, for today.
The Italian cousin is a different matter altogether. A bit of a cad (apparently), his boyish charm has led him to enjoy a charmed life, protected when necessary by law changes and widespread fiscal degeneration, to the extent that nobody twigged until recently that he makes the Greek cousin look like a pillar of financial rectitude.
Let's pop back to the real world for a minute. Greece is defaulting. dress it up however you like, but it cannot and will not repay its debts. And it still needs to borrow more. Italy is fooling the markets no longer. It is no surprise to me that on a day when the markets breathed a sigh of relief that at least a dose of realism has been adopted regarding Greece, Italy paid 6.06% on its 10 year debt refinancing, and didn't manage to borrow all that it needed. That is the highest interest rate since the Euro was created. Levels anywhere higher than this are generally rated as unsustainable.
EFSF
Don't worry about the letters. It's not Euro Folly Shall Fail. It's the Euro bailout fund. A huge pot of money to rescue recalcitrant Euro cousins. Merkozy have decided (rightly) that €410bn isn't going to be enough, and that something in excess of €1trillion sounds more like it. How are they going to get from A to B? Two possibilities, firstly get other people to chip in, such as the cash rich Chinese, or leverage. That is using the original pot to borrow more. If that sound a bit like what got us all into this mess in the first place to you... join the club.
What next?
And so we finished the week at 1.1400. Scant change for all the excitement really. I get the impression that the foreign exchange and money markets are beginning to tire of the Euro Circus and the hype that goes with it. If they start to refocus on fundamentals, as they should, we should see calmer markets. Sterling won't benefit much though until Osborne and King get their act in gear and bring in measures designed to bring the UK back into growth - and those measures will have to be shown to be working.
That won't happen by next week, that's for sure. Sterling to remain under 1.1450 for me.
Saturday, October 22, 2011
F/X weekly comment
It's been an interesting week, in a dull sort of way. My gloomy scenario for sterling hasn't materialised, but that doesn't mean that we're out of the mire, by any means. What has actually happened is a 'Time Out' , and we will wait with baited breath to see what will happen about Greece and the overall Euro debt scenario.
Big weekend
This was always going to be a big weekend, and it won't disappoint. It will be a very important for the future of the Eurozone, and without any doubt sterling's value against the Euro will continue to be dictated by the outcome of this weekend's discussions between EU leaders to sort out the future of Greece and the other threatened peripheral economies.
As I write this, the news that they do not expect to come up with any significant declaration over the weekend and have postponed any major statement until Wednesday has done nothing to calm anyone's nerves, and may serve to weaken the Euro. .
Sterling?
Not a lot happened really. What announcements there were virtually cancelled themselves out. There was a good news story in that the UK Public Sector Net Borrowing figure for September came in at a lower than anticipated level, but to offset this the Nationwide Consumer Confidence survey showed that British consumer confidence contracted for the fourth month in succession.
What next?
Probably a lot more to talk about next week. We are at 1.1480 now, and we could easily be at either 1.1700 or 1.1200 by this time next week. To be honest, I suspect somewhere towards the lower range, but as ever I'd be happy to be prove wrong.
Saturday, October 15, 2011
F/X weekly comment
Normal service is resumed this week, with my forecast of 1.1700 a good 300 points adrift of the actual result. To be fair though, it is probably a fair reflection of the news and statistic that have emerged since last weekend. My sentiment is changed, to the extent that bought some Euros this week at 1.1350. Here's why I did that:
UK Stats
As you may guess, nothing to look at with any enthusiasm. Unemployment is now at its highest level since 1996. An 8.1% rise in one month. 2.57m Britons now are out of work. The labour market figures also showed that UK youth unemployment has reached a record level, with 991,000 British 16-24 year olds currently without work. This represents the coal-face of the austerity measures, and can only increase pressure on Osborn and Cameron to ease their foot off the pedal. If they do that, the markets will perceive it as a sign of weakness, and sterling will be under even more pressure.
The UK trade deficit actually narrowed to £1.9bn this week, a better figure than expected, but it didn't help at all. That in itself is another bad sign. When no-one buys your currency when good news comes out, it could be time to batten down the hatches.
Last week's decision to print another £75bn of readies also started to drag on the pound, despite being relatively well received last week.
Euro politics
European politicians were having a busy time this week, mostly at sterling's expense. Slovakia grabbed its 15 minutes of fame by rejecting ratification of the expansion of the European Financial Stability Facility, or trough as I prefer to think of it. Nobody really took them seriously though, and sure enough a day or so later another vote saw the measure passed. Isn't politics wonderful? Such flexibility of mind, and maybe wallet.
EC President Jose Manuel Barroso waded in with a speech outlining the roadmap to lead the Eurozone out of the debt problems it is currently treading water in. Barroso outlined five wide-ranging policies, including closer political unity, increased pressure on retail banks to support troubled states and the bolstering of the aforementioned EFSF. He then stretched the imagination a little too far when he declared that 'any decision to use its capacity more efficiently through leveraging will not have an effect on its triple-A rating'. Yeah, right.
Meanwhile, there was also good news for the Eurozone’s real economy, with the release of August’s whole-of-Eurozone Industrial Production figure, which showed that industrial output had unexpectedly expanded by 1.2% since July’s figure. Analysts had anticipated that the figure would show a monthly contraction of 0.8%.
What next?
As you may have gathered, I'm getting an unhappy feeling for the pound at the moment. The signs are looking a little ominous. There is a huge meeting due at the end of the month, with Sarkozy and Merkel due to reveal their plans to save the Euro, and probably the world with it. If the markets swallow it, the pound will struggle while it continues to produce poor economic data. I don't think too much will happen in the next week, but I might buy some more Euros. 1.13ish for me by next weekend
Friday, October 7, 2011
F/X weekly comment
Please forgive me for basking in the glory of a correct forecast, but it doesn't happen often. I signed off last week with 'What happens next is anybody's guess, but mine is that Greece will stay in the news, and we may see the pound hang on above 1.1550 by next Friday, when I will (hopefully) report on a full week of shenanigans'. Well, here we are in the high 1.15s, and it certainly has been a week to remember...
QE2
No, not the boat, the (money) printer. £75bn of it, taking the total extra cash launched into the UK economy to £275bn so far. Where has it gone? Search me, well don't bother actually, because I haven't seen any of it. To be fair, it's not paper money, good old £20 notes. No, it's bond purchases, injecting money into the balance sheets of sick banks. More on them later.
Strange in a way, as up to the last MPC meeting there was only one member, Adam Posen, calling for more QE. Suddenly he has at least four other believers, and the button gets pressed. Now call me cynical if you wish, but could this possibly have any connection wiht the fact that sterling crept over 1.1700 to the Euro earlier this week, as Greece did indeed stay in the news, and for all the same recent reasons? Bust, Broke, Bankrupt. Now when a country or an economic zone is in trouble, one way to crawl out of it is to weaken your currency, and we have seen Merv and the boys follow this line religiously. Yet here was the Euro managing to out-weaken us. What can we do to stop the flow? What about another dose of QE? The markets hate it and they will sell sterling. And they did, but mostly against the dollar. We did fall into the 1.14s for a while, but the plain fact is that the Euro is having a difficult time of it at present, so we soon saw sterling edging back over 1.1500. I did read one commentators page which tried to push the line that the market was impressed by the MPC talking decisive action to kickstart the UK economy. Balderdash.
Sick Banks
As a measure of how stressed the Euro is, not even the downgrading of twelve UK financial institutions, including RBS, Lloyds,and the Co-op, managed to pull sterling back into the doldrums. Fascinating stuff. There's no doubt that the UK economy is deep in the mire, and sterling should be heading south at a rate of knots. With the likes of Greece and the other PIGS in such a parlous state however, we have taken on the rosy glow of a safe-haven currency. How long for I wonder?
What next?
I spent a good part of this week attending presentations by analysts and fund managers, and of course economic woes were high on the list of topics for discussion. I had to smile though when one fund manager made a valiant case for there being no default by Greece on its debt. this was in complete contradiction of the previous speaker, who said it was a' given'. I like a good contrarian view.
For that very reason I'm going for a good week for sterling this week. Let's have another go at the 1.17's. That might be because I was away and didn't get the chance to buy some Euros up there though...
QE2
No, not the boat, the (money) printer. £75bn of it, taking the total extra cash launched into the UK economy to £275bn so far. Where has it gone? Search me, well don't bother actually, because I haven't seen any of it. To be fair, it's not paper money, good old £20 notes. No, it's bond purchases, injecting money into the balance sheets of sick banks. More on them later.
Strange in a way, as up to the last MPC meeting there was only one member, Adam Posen, calling for more QE. Suddenly he has at least four other believers, and the button gets pressed. Now call me cynical if you wish, but could this possibly have any connection wiht the fact that sterling crept over 1.1700 to the Euro earlier this week, as Greece did indeed stay in the news, and for all the same recent reasons? Bust, Broke, Bankrupt. Now when a country or an economic zone is in trouble, one way to crawl out of it is to weaken your currency, and we have seen Merv and the boys follow this line religiously. Yet here was the Euro managing to out-weaken us. What can we do to stop the flow? What about another dose of QE? The markets hate it and they will sell sterling. And they did, but mostly against the dollar. We did fall into the 1.14s for a while, but the plain fact is that the Euro is having a difficult time of it at present, so we soon saw sterling edging back over 1.1500. I did read one commentators page which tried to push the line that the market was impressed by the MPC talking decisive action to kickstart the UK economy. Balderdash.
Sick Banks
As a measure of how stressed the Euro is, not even the downgrading of twelve UK financial institutions, including RBS, Lloyds,and the Co-op, managed to pull sterling back into the doldrums. Fascinating stuff. There's no doubt that the UK economy is deep in the mire, and sterling should be heading south at a rate of knots. With the likes of Greece and the other PIGS in such a parlous state however, we have taken on the rosy glow of a safe-haven currency. How long for I wonder?
What next?
I spent a good part of this week attending presentations by analysts and fund managers, and of course economic woes were high on the list of topics for discussion. I had to smile though when one fund manager made a valiant case for there being no default by Greece on its debt. this was in complete contradiction of the previous speaker, who said it was a' given'. I like a good contrarian view.
For that very reason I'm going for a good week for sterling this week. Let's have another go at the 1.17's. That might be because I was away and didn't get the chance to buy some Euros up there though...
Thursday, September 29, 2011
F/X weekly comment
Early start for this weeks missive. Very busy weekend ahead on Spectrum business, so I'm writing this on Friday morning. So if something happened on Friday afternoon to make me look even dafter than usual, I apologise (again). As I write we are looking at 1.1510 (the first time I typed that it said 1.51... maybe one day), which is somewhat out of line from my forecast of 1.1375. but I don't mind too much when it's that way round. So what's been going on this week?
Sterling down against the Euro early in the week
The pound struggled during the early part of the week as the Euro was supported by news that European leaders are chasing round the continent to discuss the release of more aid for Greece. This strengthened the Euro, and along with continued speculation that there will be more QE (printing money), the pound was floundering in the low to mid 1.14's.
Bailout Fund
With this wonderful system of consensus that is Europe, the merry-go-round of votes on all things important has been going on during the week as to whether or not European taxpayers will be saddled with the burden of chucking more and more money at the political football that is the Euro project. The problem is that it is a bit like turkey farmers voting for Christmas. It is very much in their own interests to keep this ship afloat, and the taxpayers supply the money.
Finland having approved the enlargement of the bailout fund on Wednesday, it was the turn of German Chancellor Angela Merkel to face a vote on whether to play ball today. Luckily for her, there are enough turkey farmers in her coalition. Chancellor Merkel puts it another way, she says she believes the vote is about Germany demonstrating its determination to save the euro. Of course it is.
Greece
Is a busted flush. Even the prime minister says he can't afford to pay the new taxes that are appearing by the day. They will default, however cleverly it is dressed up. That will weaken the Euro in the long run.
What next?
Barring economic turmoil on Friday afternoon, the Euro will probably end up around 1.1475 or 1.1500 against the pound. What happens next is anybody's guess, but mine is that Greece will stay in the news, and we may see the pound hang on above 1.1550 by next Friday, when I will (hopefully) report on a full week of shenanigans.
Sterling down against the Euro early in the week
The pound struggled during the early part of the week as the Euro was supported by news that European leaders are chasing round the continent to discuss the release of more aid for Greece. This strengthened the Euro, and along with continued speculation that there will be more QE (printing money), the pound was floundering in the low to mid 1.14's.
Bailout Fund
With this wonderful system of consensus that is Europe, the merry-go-round of votes on all things important has been going on during the week as to whether or not European taxpayers will be saddled with the burden of chucking more and more money at the political football that is the Euro project. The problem is that it is a bit like turkey farmers voting for Christmas. It is very much in their own interests to keep this ship afloat, and the taxpayers supply the money.
Finland having approved the enlargement of the bailout fund on Wednesday, it was the turn of German Chancellor Angela Merkel to face a vote on whether to play ball today. Luckily for her, there are enough turkey farmers in her coalition. Chancellor Merkel puts it another way, she says she believes the vote is about Germany demonstrating its determination to save the euro. Of course it is.
Greece
Is a busted flush. Even the prime minister says he can't afford to pay the new taxes that are appearing by the day. They will default, however cleverly it is dressed up. That will weaken the Euro in the long run.
What next?
Barring economic turmoil on Friday afternoon, the Euro will probably end up around 1.1475 or 1.1500 against the pound. What happens next is anybody's guess, but mine is that Greece will stay in the news, and we may see the pound hang on above 1.1550 by next Friday, when I will (hopefully) report on a full week of shenanigans.
Saturday, September 24, 2011
F/X weekly comment
So we started the week on 1.1450 and we ended at? 1.1460 - exciting stuff, not. That's about it really, but I suppose I'm expected to write a bit more than that. Actually the message is starting to get a little tiresome. Sterling is in trouble because the UK can't get off the ground as far as a recovery from the recession is concerned. The Euro is in trouble because all the members of the Euro that shouldn't really have been in it in the first place now find that they can't afford to repay the debts that have built up to the rich European nations (and others) since the Euro began. There are a limited number of ways that you can continually narrate the same story.
But what the heck, something interesting must have happened this week?
USD strength
Yes, I know that's got bagger all to do with the GBP/EUR rate, but bear with me. The reason the dollar strengthened wasn't that the USA looks like a good place to invest, or the economy is booming. Far from it. Political divisions, rising jobless and falling house prices make the USA another basket case, but the dollar is a reserve currency. That means that when everything else around us is falling down, speculators will buy the dollar. It now seems that in addition to growth in Europe and the states being static at best, China and India are now falling by the wayside, and the other BRIC countries don't have much to offer either (That's Brazil and Russia). Gloomsters are starting to talk about a global recession again. Yawn.
QE
Yes, money printing is back on the agenda. With an air of a gropu of punters getting increasingly desperate to reverse a bad run of luck, Merv and his men are considering another throw of the QE dice. £50bn here, £50bn there, surely it must do some good eventually? Maybe, maybe not, but currency dealers don't like it. Something about an old fashioned view that it might increase inflation in future. Surely not? (actually a racing certainty if you ask me).
Euro
Can't really leave the Euro out of this, can we? The Greek finance minister called talks with nearly all the international debt agencies 'productive'. I bet they were. As far as I'm concerned any talk that brings Greece closer to bankruptcy or a debt restructuring will put the euro under more and more pressure, so we should still see sterling having the occasional look at 1.20.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet. (and yes, I do know that this paragraph was in last week's comment)
1.1375 for me. A bit boring really. We shall see...
But what the heck, something interesting must have happened this week?
USD strength
Yes, I know that's got bagger all to do with the GBP/EUR rate, but bear with me. The reason the dollar strengthened wasn't that the USA looks like a good place to invest, or the economy is booming. Far from it. Political divisions, rising jobless and falling house prices make the USA another basket case, but the dollar is a reserve currency. That means that when everything else around us is falling down, speculators will buy the dollar. It now seems that in addition to growth in Europe and the states being static at best, China and India are now falling by the wayside, and the other BRIC countries don't have much to offer either (That's Brazil and Russia). Gloomsters are starting to talk about a global recession again. Yawn.
QE
Yes, money printing is back on the agenda. With an air of a gropu of punters getting increasingly desperate to reverse a bad run of luck, Merv and his men are considering another throw of the QE dice. £50bn here, £50bn there, surely it must do some good eventually? Maybe, maybe not, but currency dealers don't like it. Something about an old fashioned view that it might increase inflation in future. Surely not? (actually a racing certainty if you ask me).
Euro
Can't really leave the Euro out of this, can we? The Greek finance minister called talks with nearly all the international debt agencies 'productive'. I bet they were. As far as I'm concerned any talk that brings Greece closer to bankruptcy or a debt restructuring will put the euro under more and more pressure, so we should still see sterling having the occasional look at 1.20.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet. (and yes, I do know that this paragraph was in last week's comment)
1.1375 for me. A bit boring really. We shall see...
Sunday, September 18, 2011
F/X weekly comment
I think it was obvious from my final comment last week that I was doubtful whether sterling would be able to consolidate at the 1.16 level. It is no surprise to me that we find ourselves down at the 1.1450 level at the start of this week. So what went wrong this time?
Same old sterling (reprise)
There was enough data last week to support any negative outlook for the UK economy. The RICS Housing Survey showed that 23 percent more surveyors recorded falling rather than rising prices in August, while the UK house price index dropped 1.5 percent in July. Retail sales shrank 0.2% in August, and inflation continued its upward march, increasing to 4.5% in August. Goodness knows what the real rate is by the way.
Osborne and Clegg wittered on about the possibility of increasing the monetary stimulus (QE/Printing Money) to support the economy. Adam Posen, one of Merv's merry men, said the BoE should purchase as much as £100 billion in securities over the next three months. Currently the program stands at £200 billion.
Not one bit of any of this news is designed to give sterling any help at all.
Euro tottering?
All this of course is happening against the backdrop of the Euro under severe pressure of its own. Greece is teetering (different from tottering) on the brink of default, and no-one can really predict what the outcome of that would be, other than an almighty mess. Portugal, Spain, Ireland and Italy watch with interest, with maybe a touch of blind panic mixed in.
Some respite for the Euro came with a move by the central banks of the USA, UK, Japan and Switzerland, and also the ECB, to provide additional lending facilities, and this will help counter fears about the exposure of banks in the EU to eurozone sovereign debt. The debt problems had made the banks reluctant to lend and this in turn has created funding problems.
There was also further help for the Euro after European Commission President Jose Manuel Barroso said Euro bonds could be introduced. This would effectively share out Greece's (and other problem country's) debt, with sovereign bonds being replaced by pan-European bonds. Needless to say, The Germans aren't keen.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet.
It will be interesting this week to monitor the data due for release. In the eurozone, we get the first look at sentiment and activity surveys for September with the German ZEW (Centre for European Economic Research - work that one out) expectations index and eurozone PMIs due for release. All are expected to slip further, confirming once again that the European economy has lost considerable momentum since the beginning of the year. A poor set of numbers could further fuel talk that the ECB may be forced to reverse the rate hikes implemented earlier in the year. Markets will also be watching comments from the Merv's mate Clude Trichet who is due to speak on Friday.
In the UK, the highlight of the week will undoubtedly be Wednesday’s release of the minutes of the September BoE policy meeting.
Net result? 1.1375 for me. A bit boring really. We shall see...
Same old sterling (reprise)
There was enough data last week to support any negative outlook for the UK economy. The RICS Housing Survey showed that 23 percent more surveyors recorded falling rather than rising prices in August, while the UK house price index dropped 1.5 percent in July. Retail sales shrank 0.2% in August, and inflation continued its upward march, increasing to 4.5% in August. Goodness knows what the real rate is by the way.
Osborne and Clegg wittered on about the possibility of increasing the monetary stimulus (QE/Printing Money) to support the economy. Adam Posen, one of Merv's merry men, said the BoE should purchase as much as £100 billion in securities over the next three months. Currently the program stands at £200 billion.
Not one bit of any of this news is designed to give sterling any help at all.
Euro tottering?
All this of course is happening against the backdrop of the Euro under severe pressure of its own. Greece is teetering (different from tottering) on the brink of default, and no-one can really predict what the outcome of that would be, other than an almighty mess. Portugal, Spain, Ireland and Italy watch with interest, with maybe a touch of blind panic mixed in.
Some respite for the Euro came with a move by the central banks of the USA, UK, Japan and Switzerland, and also the ECB, to provide additional lending facilities, and this will help counter fears about the exposure of banks in the EU to eurozone sovereign debt. The debt problems had made the banks reluctant to lend and this in turn has created funding problems.
There was also further help for the Euro after European Commission President Jose Manuel Barroso said Euro bonds could be introduced. This would effectively share out Greece's (and other problem country's) debt, with sovereign bonds being replaced by pan-European bonds. Needless to say, The Germans aren't keen.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet.
It will be interesting this week to monitor the data due for release. In the eurozone, we get the first look at sentiment and activity surveys for September with the German ZEW (Centre for European Economic Research - work that one out) expectations index and eurozone PMIs due for release. All are expected to slip further, confirming once again that the European economy has lost considerable momentum since the beginning of the year. A poor set of numbers could further fuel talk that the ECB may be forced to reverse the rate hikes implemented earlier in the year. Markets will also be watching comments from the Merv's mate Clude Trichet who is due to speak on Friday.
In the UK, the highlight of the week will undoubtedly be Wednesday’s release of the minutes of the September BoE policy meeting.
Net result? 1.1375 for me. A bit boring really. We shall see...
Friday, September 9, 2011
F/X weekly comment
And proved wrong I certainly was!
As I write this sterling is sitting close to the dizzy heights of 1.1600 (OK, 1.1580). So what has caused all this merriment?
Same old sterling
Not a sterling show of strength, that's for sure. Interest rates were held again at 0.5%, which was such a racing certainty that you couldn't have got a price on it. UK PMI service sector figures showed the biggest fall in ten years, proof if needed that the UK economy is not responding as hoped. Indeed George Osborne was forced to admit in a speech this week that hope of an imminent economic recovery had been scaled back. All this keeps the markets eye on another potential tranche of QE (money printing), which is quite rightly negative for sterling.
However QE wasn't mentioned at all at the BoE meeting on Thursday, and the markets liked that, and it proved to be a spark that was followed by a very adjacent piece of blue touchpaper.
Euro reality
Amazingly, to my mind anyway, the ECB after meeting speech by Jean-Claude Trichet was factual, downbeat, and downright gloomy for the Euro. Perhaps he just wasn't up to applying gloss paint to rotten wood anymore. Trichet announced that no change would be made to the Euro rate, no surprise there, but then went on to highlight 'downside risks to economic growth in the Eurozone'.
This is remarkable not just because it is true, but because it is in effect an admission that the central bank were probably wildly optimistic in their timing when they started to raise Euro interest rates. If you remember, it was blindingly obvious at the time that sterling rates could not go up. The market has now decided that future rate rises have been pushed much further back in time, and some are even suggesting that the next rate movement for the Euro may be down.
During Thursday afternoon the rate moved from the low 1.1300s to over 1.15, and on Friday the onslaught continued and the Euro weakened further, in fact it has just made up those twenty points and is now at 1.16.
This week?
Aha, a note of caution is necessary here. Next week we have a whole raft of UK economic data, and precious little to come from the Eurozone. We will see UK data for house prices, inflation, unemployment and August retail sales. That is four chances to score an own goal, so I am pessimistic about our chances of keeping the momentum going. There is just a chance though that the Euro may be holed below the waterline.
On balance, I'd love to see sterling establish a base at 1.16 but somehow....
As I write this sterling is sitting close to the dizzy heights of 1.1600 (OK, 1.1580). So what has caused all this merriment?
Same old sterling
Not a sterling show of strength, that's for sure. Interest rates were held again at 0.5%, which was such a racing certainty that you couldn't have got a price on it. UK PMI service sector figures showed the biggest fall in ten years, proof if needed that the UK economy is not responding as hoped. Indeed George Osborne was forced to admit in a speech this week that hope of an imminent economic recovery had been scaled back. All this keeps the markets eye on another potential tranche of QE (money printing), which is quite rightly negative for sterling.
However QE wasn't mentioned at all at the BoE meeting on Thursday, and the markets liked that, and it proved to be a spark that was followed by a very adjacent piece of blue touchpaper.
Euro reality
Amazingly, to my mind anyway, the ECB after meeting speech by Jean-Claude Trichet was factual, downbeat, and downright gloomy for the Euro. Perhaps he just wasn't up to applying gloss paint to rotten wood anymore. Trichet announced that no change would be made to the Euro rate, no surprise there, but then went on to highlight 'downside risks to economic growth in the Eurozone'.
This is remarkable not just because it is true, but because it is in effect an admission that the central bank were probably wildly optimistic in their timing when they started to raise Euro interest rates. If you remember, it was blindingly obvious at the time that sterling rates could not go up. The market has now decided that future rate rises have been pushed much further back in time, and some are even suggesting that the next rate movement for the Euro may be down.
During Thursday afternoon the rate moved from the low 1.1300s to over 1.15, and on Friday the onslaught continued and the Euro weakened further, in fact it has just made up those twenty points and is now at 1.16.
This week?
Aha, a note of caution is necessary here. Next week we have a whole raft of UK economic data, and precious little to come from the Eurozone. We will see UK data for house prices, inflation, unemployment and August retail sales. That is four chances to score an own goal, so I am pessimistic about our chances of keeping the momentum going. There is just a chance though that the Euro may be holed below the waterline.
On balance, I'd love to see sterling establish a base at 1.16 but somehow....
Saturday, September 3, 2011
F/X Weekly comment
Almost a cheery end to the week for sterling on Friday, as we ended up at 1.1420 against 1.1289 the week before. It wasn't all one way traffic though, and economic news during the week had a familiar ring to it.
Rangebound
Sterling/Euro seems to be stuck in 1.11 to 1.15 range, yet I get the feeling that it could strike out of that range in spectacular fashion, up or down, without much warning. And of course it's nothing to do with strength, and all to do with weakness.
There is a global growth problem at the moment. It's not just confined to Europe and the UK. That in itself makes it more difficult for either of those economic entities to improve. If the world isn't buying, what is the point in masking more of anything?
UK weakness
This week saw another stream of disappointing economic data which undermined sterling as worries over the UK recovery continue. House prices fell again, as did service sector and manufacturing activity. Growth in the UK construction sector showed a further slowdown last month according to the PMI construction survey released this week. The figure was the lowest so far this year. All this negativity supports the view that UK interest rates are expected to remain at a record low of 0.5% for some time yet, maybe into 2013.
Euro weakness
In the Eurozone, the Euro had a rocky week against the US dollar after the Federal Reserve indicated another possible round of quantitative easing on Friday. The Euro weakened against sterling after manufacturing activity in the Eurozone shrank more than expected. Germany had the strongest manufacturing figures with 50.9, whilst Greece had the weakest at 43.3. Germany also saw its new export orders decline which has increased concerns over the euro zone economy. (anything over 50 means growth, below 50 is projected shrinkage)
The manufacturing picture diverted attention from the debt crisis in Europe for a while, but it is never very far away. The Spanish government managed to sell €3.6bn of 5 year debt versus a target of €4bn or €6bn, whichever source you read, but either way, that isn't good news. The auction, when taken in addition to some horrible manufacturing PMI numbers from gave sterling the shot in the arm to finish the week strongly.
This week?
Guesswork, pure and simple, and my guess is that the Euro will stumble along in its own inimitable way without falling over, and the UK will trot out yet more dismal economic data and get trounced. back to 1.1250 for me by next week. I'd love to be proved wrong!
Rangebound
Sterling/Euro seems to be stuck in 1.11 to 1.15 range, yet I get the feeling that it could strike out of that range in spectacular fashion, up or down, without much warning. And of course it's nothing to do with strength, and all to do with weakness.
There is a global growth problem at the moment. It's not just confined to Europe and the UK. That in itself makes it more difficult for either of those economic entities to improve. If the world isn't buying, what is the point in masking more of anything?
UK weakness
This week saw another stream of disappointing economic data which undermined sterling as worries over the UK recovery continue. House prices fell again, as did service sector and manufacturing activity. Growth in the UK construction sector showed a further slowdown last month according to the PMI construction survey released this week. The figure was the lowest so far this year. All this negativity supports the view that UK interest rates are expected to remain at a record low of 0.5% for some time yet, maybe into 2013.
Euro weakness
In the Eurozone, the Euro had a rocky week against the US dollar after the Federal Reserve indicated another possible round of quantitative easing on Friday. The Euro weakened against sterling after manufacturing activity in the Eurozone shrank more than expected. Germany had the strongest manufacturing figures with 50.9, whilst Greece had the weakest at 43.3. Germany also saw its new export orders decline which has increased concerns over the euro zone economy. (anything over 50 means growth, below 50 is projected shrinkage)
The manufacturing picture diverted attention from the debt crisis in Europe for a while, but it is never very far away. The Spanish government managed to sell €3.6bn of 5 year debt versus a target of €4bn or €6bn, whichever source you read, but either way, that isn't good news. The auction, when taken in addition to some horrible manufacturing PMI numbers from gave sterling the shot in the arm to finish the week strongly.
This week?
Guesswork, pure and simple, and my guess is that the Euro will stumble along in its own inimitable way without falling over, and the UK will trot out yet more dismal economic data and get trounced. back to 1.1250 for me by next week. I'd love to be proved wrong!
Friday, August 26, 2011
F/X Weekly Comment
As last week's parting shot I highlighted the UK 2nd quarter GDP figures out this week, and how they might disappoint. Well, disappoint they did, and we didn't manage to hold on to the 1.1300 level, ending the week at 1.1289. Unrevised at just 0.2% just isn't good enough, and if UK figures continue to disappoint in this way, we're in trouble.
Complete and utter...
Tosh. I like to keep tabs on what commentators are saying about the markets during the week. It makes an interesting diversion from scouring local fields looking for my lost cat, who of course turns up just after I've set out in the rain... Anyway, sometimes I am reminded of why I'm so happy not to be involved in these markets directly anymore. Take this as an example:
'GBP looks to be playing `catch-up` to the downside this week, after a week of outperformance last week, that may have an underlying cause in corporate flow.'
Ahem, excuse me? What's wrong with 'Sterling's going down the pan, as it should have done last week, and one reason is that companies are dumping it.' That has a more direct ring to it for me. Not that I agree with it though. Sure, the UK is a basket case at present, but surely Europe is a bigger basket, and the bigger they come, the harder they fall? Apparently not the case these days.
Downgrade the ratings, not the country's
You may recall a week or two ago Standard and Poor's saying that the American government was no longer AAA rated. In theory that should make their borrowing more expensive, and boy have they got some debt to fund. And yet despite this, it is still cheaper for the USA to borrow in the international markets than it is for say the UK or France, who both remain AAA rated. What do we glean from this? How about the fact that S&P are themselves hugely overrated?
Southbound
No matter how much I protest, it looks as though we are about to hit another rocky patch against that king of bluff and bluster, the Euro. We probably have ourselves to blame in the sense that we are simply not doing enough to drag ourselves out of the economic mire. When I say 'we' I mean our economic political masters, who insist they are standing firm in the face of adversity whilst actually edging back towards the precipice. Yes, I still think sterling should be at 1.2500, but it could do with some help from those who are most directly involved in steering the economy.
Watch out for the 1.10 level soon if nothing explodes in the Eurozone.
Complete and utter...
Tosh. I like to keep tabs on what commentators are saying about the markets during the week. It makes an interesting diversion from scouring local fields looking for my lost cat, who of course turns up just after I've set out in the rain... Anyway, sometimes I am reminded of why I'm so happy not to be involved in these markets directly anymore. Take this as an example:
'GBP looks to be playing `catch-up` to the downside this week, after a week of outperformance last week, that may have an underlying cause in corporate flow.'
Ahem, excuse me? What's wrong with 'Sterling's going down the pan, as it should have done last week, and one reason is that companies are dumping it.' That has a more direct ring to it for me. Not that I agree with it though. Sure, the UK is a basket case at present, but surely Europe is a bigger basket, and the bigger they come, the harder they fall? Apparently not the case these days.
Downgrade the ratings, not the country's
You may recall a week or two ago Standard and Poor's saying that the American government was no longer AAA rated. In theory that should make their borrowing more expensive, and boy have they got some debt to fund. And yet despite this, it is still cheaper for the USA to borrow in the international markets than it is for say the UK or France, who both remain AAA rated. What do we glean from this? How about the fact that S&P are themselves hugely overrated?
Southbound
No matter how much I protest, it looks as though we are about to hit another rocky patch against that king of bluff and bluster, the Euro. We probably have ourselves to blame in the sense that we are simply not doing enough to drag ourselves out of the economic mire. When I say 'we' I mean our economic political masters, who insist they are standing firm in the face of adversity whilst actually edging back towards the precipice. Yes, I still think sterling should be at 1.2500, but it could do with some help from those who are most directly involved in steering the economy.
Watch out for the 1.10 level soon if nothing explodes in the Eurozone.
Saturday, August 20, 2011
F/X Weekly comment
Pretty much more of the same this week, with the markets trying to pick the best of a bad bunch. Sterling actually did quite well for a few days, moving into the mid 1.1500 as one point, but we end the week on a familiar note, and back down at the 1.1450 mark, not too bad in terms of this year, but woefully short of where we could and should be.
Euro's weak
EU and German GDP figures released this week were disappointing. The German economy only grew by 0.1%, France by 0.0%, and the EU as a whole only 0.2%. The slow growth figures hampered the Euro, allowing sterling to make gains during the week. Sarkozy and Merkel also had another little get-together this week, but were unable to come up with a unified agreement on debt this weakened the Euro further. Watch out for more developments on Eurozone debt next week.
Sterling's nearly as weak
All was going swimmingly for the first three or four days of this week. Sterling was perceived as the best of the bunch on the currency markets for a change. That might seem remarkable, but the choices were limited. The USD is going through its own crisis at the moment, and other potential safe havens such as the yen and the Swiss franc have become so strong that their governments have been taking drastic measures to weaken their currencies. For all its faults, sterling can be seen as a bastion of financial stability in relation to many other countries in some people's eyes.
Then Friday the UK Public Sector Net Borrowing figure showed that the UK generated £2bn of new debt in July alone. This cannot have come as a huge surprise to the market given what we know about the strength of the recovery, but it weighed down on sterling and we managed to give up most of the week's gains during the rest of the day.
What now?
Next week we have the UK GDP Growth figures for the second quarter, and they aren't likely to be up to much either, so stand by for a dodgy time next week. My forecast last week was 1.1350 and I talked about timing being of the essence. I think maybe 1.1350might be a good place to be this time next week.
Euro's weak
EU and German GDP figures released this week were disappointing. The German economy only grew by 0.1%, France by 0.0%, and the EU as a whole only 0.2%. The slow growth figures hampered the Euro, allowing sterling to make gains during the week. Sarkozy and Merkel also had another little get-together this week, but were unable to come up with a unified agreement on debt this weakened the Euro further. Watch out for more developments on Eurozone debt next week.
Sterling's nearly as weak
All was going swimmingly for the first three or four days of this week. Sterling was perceived as the best of the bunch on the currency markets for a change. That might seem remarkable, but the choices were limited. The USD is going through its own crisis at the moment, and other potential safe havens such as the yen and the Swiss franc have become so strong that their governments have been taking drastic measures to weaken their currencies. For all its faults, sterling can be seen as a bastion of financial stability in relation to many other countries in some people's eyes.
Then Friday the UK Public Sector Net Borrowing figure showed that the UK generated £2bn of new debt in July alone. This cannot have come as a huge surprise to the market given what we know about the strength of the recovery, but it weighed down on sterling and we managed to give up most of the week's gains during the rest of the day.
What now?
Next week we have the UK GDP Growth figures for the second quarter, and they aren't likely to be up to much either, so stand by for a dodgy time next week. My forecast last week was 1.1350 and I talked about timing being of the essence. I think maybe 1.1350might be a good place to be this time next week.
Saturday, August 13, 2011
F/X Weekly Comment
A very familiar theme emerged this week. More of the 'After you Mervyn. No no, after you Claude.' Sterling once again managed to regress when faced with the likelihood of progression against the Euro, and instead of pressing on towards the 1.1600 level as I had hoped, it bounced around all over the place and we finished up at 1.1420.
Euro woes
Let's not think for a minute that the Euro is off the hook here. When European Commission President Jose Barroso warns that financial markets are not convinced that Eurozone governments are prepared to take necessary action to defend the stability of the Eurozone, you should know wthat you have a problem on your hands. Barroso went on to say that the Eurozone crisis is no longer confined to the peripheral states. Too right it's not. Italy's Berlusconi was forced to announce another austerity package yesterday amounting to €62 bn, and even our own M. Sarkozy called back all his ministers from holifay this week and gave them ten days to come up with more cost saving measures. That should be fun. At one stage France looked set to lose its AAA rated status, and may well yet do so. Germany is now the only European country that has truly sovereign debt, that is IOUs that are worth the paper they're printed on. Do we really believe that France can afford to make additional contributions to the potential bailout packages for Spain and Italy?
Yet still the Euro juggernaut rumbles on, although the wheels are looking a little loose.
Sterling woes
OK, so where shall I start? How about a bit of civil unrest? We smirked at the (mini) riots in Greece when the austerity packages were announced. 'There you are you see. Unruly lot. Can't take the heat'. Well there was a lot of heat kicking around our major city centres this week, and the currency markets took note. Mindless moronic thugs out to loot whatever they could get their hand son, or a cry for social justice from an underprivileged underclass? I know what version I believe, but whichever side you take, it doesn't look good to the outside world.
While all this was going on night after night, Mervyn stuck the boot in with the latest Bank of England Quarterly Inflation report, which saw a downward revision of growth for 2012 to 2.% (from 2.5%) and for 2011 to 1.5% (from 1.8%). These downgrades keep on coming, so how low will they get? He also added that the 'headwinds are getting stronger' and 'the mood in markets has taken a sharp turn for the worse'.
Cheer up though, we are doing rather well at the cricket...
What now?
What a good question. I sometimes ask myself why I keep on asking it. In truth I suspect that the answer lies in the timing. Which currency will weaken soonest? A couple of high powered forecasters are suggesting that sterling will be down at 1.0500 well before Christmas. Personally, I don't see it. It might have merit on Sterling's performance alone, but I can't see that it takes into account the fragility of the Euro. Don't hold off from dealing just because of my view though (in fact NEVER do that). The near term outlook is getting very confused. Longer term I'm still very bullish for Sterling, but we have to start seeing some decent signs of economic recovery, and they're not there yet.
Pushed for a price next week, I'd say 1.1350.
Euro woes
Let's not think for a minute that the Euro is off the hook here. When European Commission President Jose Barroso warns that financial markets are not convinced that Eurozone governments are prepared to take necessary action to defend the stability of the Eurozone, you should know wthat you have a problem on your hands. Barroso went on to say that the Eurozone crisis is no longer confined to the peripheral states. Too right it's not. Italy's Berlusconi was forced to announce another austerity package yesterday amounting to €62 bn, and even our own M. Sarkozy called back all his ministers from holifay this week and gave them ten days to come up with more cost saving measures. That should be fun. At one stage France looked set to lose its AAA rated status, and may well yet do so. Germany is now the only European country that has truly sovereign debt, that is IOUs that are worth the paper they're printed on. Do we really believe that France can afford to make additional contributions to the potential bailout packages for Spain and Italy?
Yet still the Euro juggernaut rumbles on, although the wheels are looking a little loose.
Sterling woes
OK, so where shall I start? How about a bit of civil unrest? We smirked at the (mini) riots in Greece when the austerity packages were announced. 'There you are you see. Unruly lot. Can't take the heat'. Well there was a lot of heat kicking around our major city centres this week, and the currency markets took note. Mindless moronic thugs out to loot whatever they could get their hand son, or a cry for social justice from an underprivileged underclass? I know what version I believe, but whichever side you take, it doesn't look good to the outside world.
While all this was going on night after night, Mervyn stuck the boot in with the latest Bank of England Quarterly Inflation report, which saw a downward revision of growth for 2012 to 2.% (from 2.5%) and for 2011 to 1.5% (from 1.8%). These downgrades keep on coming, so how low will they get? He also added that the 'headwinds are getting stronger' and 'the mood in markets has taken a sharp turn for the worse'.
Cheer up though, we are doing rather well at the cricket...
What now?
What a good question. I sometimes ask myself why I keep on asking it. In truth I suspect that the answer lies in the timing. Which currency will weaken soonest? A couple of high powered forecasters are suggesting that sterling will be down at 1.0500 well before Christmas. Personally, I don't see it. It might have merit on Sterling's performance alone, but I can't see that it takes into account the fragility of the Euro. Don't hold off from dealing just because of my view though (in fact NEVER do that). The near term outlook is getting very confused. Longer term I'm still very bullish for Sterling, but we have to start seeing some decent signs of economic recovery, and they're not there yet.
Pushed for a price next week, I'd say 1.1350.
Friday, August 5, 2011
F/X Weekly comment
Well, 1.1500 or higher I called for last week, and as I write this late on Friday afternoon here we are at 1.1540. And what a week it's been. Worries about Eurozone debt were boosted by worries about the US debt mountain that I spoke of last week. Together they make a formidable problem, and the world's stock markets have taken this all to heart and gone on a slide.
PIIGS
It's looking more and more likely that there may be two 'I's in PIGS, with Italy coming under the spotlight this week. So much so that Mr Berlusconi had to stand up in parliament and make strong noises in its defence. That ,as we know, is enough to spook any market, and sure enough the Euro suffered as a result. Then European Commission President Jose Manuel Barroso joined in the fun by warning that the Eurozone's sovereign debt crisis was spreading, reinforcing fears that Italy and Spain might become embroiled in the problems. His comments spooked the markets even more, and both the stock markets and the Euro finished lower.
So far Ireland, Greece and Portugal have been bailed out, Greece twice. The European Commission is quite rightly worried that it will not be able to afford to do the same for Spain and Italy, the zone's third and fourth largest economies. The ECB has announced that it will offer a fresh tranche of loans to banks to counter continuing fears about the eurozone debt crisis. Jean-Claude Trichet stated that economic uncertainty was 'particularly high'. Quite an understatement really!
UK
Unusually, sterling declined the opportunity to shoot itself in the foot and help the Euro out of its problems. In fact we actually came out with some better than expected Services PMI data.
IS
Which of course stands for Italy and Spain, a subset of PIIGS. For a flavour of what might be to come, today's economic data from both counties is interesting. Italian GDP rose 0.3% between April and June, up on 0.1% growth in the first quarter, according to data supplied by the Italian National Statistics Institute. The Spanish central bank predicted GDP growth of 0.2% during the same period, after growth of 0.3% last quarter. The bank called for decisive action by Eurozone leaders, and also for domestic action to introduce structural reforms aimed at reducing the country's deficit. Weak economic growth lowers tax revenues and makes it harder for both countries to tackle their deficits. Neither country is looking as if it has the underlying strength to drag itself out of the debt mess, and if the ECB can't afford it....
What now?
At the risk of ruining a good run (OK, a one-week run), I can still see trouble for the Euro, and a move into the 1.1600's looks possible to me.
PIIGS
It's looking more and more likely that there may be two 'I's in PIGS, with Italy coming under the spotlight this week. So much so that Mr Berlusconi had to stand up in parliament and make strong noises in its defence. That ,as we know, is enough to spook any market, and sure enough the Euro suffered as a result. Then European Commission President Jose Manuel Barroso joined in the fun by warning that the Eurozone's sovereign debt crisis was spreading, reinforcing fears that Italy and Spain might become embroiled in the problems. His comments spooked the markets even more, and both the stock markets and the Euro finished lower.
So far Ireland, Greece and Portugal have been bailed out, Greece twice. The European Commission is quite rightly worried that it will not be able to afford to do the same for Spain and Italy, the zone's third and fourth largest economies. The ECB has announced that it will offer a fresh tranche of loans to banks to counter continuing fears about the eurozone debt crisis. Jean-Claude Trichet stated that economic uncertainty was 'particularly high'. Quite an understatement really!
UK
Unusually, sterling declined the opportunity to shoot itself in the foot and help the Euro out of its problems. In fact we actually came out with some better than expected Services PMI data.
IS
Which of course stands for Italy and Spain, a subset of PIIGS. For a flavour of what might be to come, today's economic data from both counties is interesting. Italian GDP rose 0.3% between April and June, up on 0.1% growth in the first quarter, according to data supplied by the Italian National Statistics Institute. The Spanish central bank predicted GDP growth of 0.2% during the same period, after growth of 0.3% last quarter. The bank called for decisive action by Eurozone leaders, and also for domestic action to introduce structural reforms aimed at reducing the country's deficit. Weak economic growth lowers tax revenues and makes it harder for both countries to tackle their deficits. Neither country is looking as if it has the underlying strength to drag itself out of the debt mess, and if the ECB can't afford it....
What now?
At the risk of ruining a good run (OK, a one-week run), I can still see trouble for the Euro, and a move into the 1.1600's looks possible to me.
Saturday, July 30, 2011
F/X Weekly comment
Interesting times indeed in all financial markets, including foreign exchange. It's not very often that I mention the USA in my weekly ramble around the pound/Euro rate, but I think they're worth a mention this week.
USA - showtime
Debt ceiling. To you and me, the amount of debt you have when you finally turn round and say 'No more'. In the case of the US it has a slightly different meaning, more like 'OK, how much more do we need?' That is until now, when a few quarrelsome senators have decided that a few thousand trillion dollars might just about be enough, much to the dismay of President Obama and everyone else who keeps the States running. If the debt ceiling isn't raised by Tuesday, The USA will start to default on its debts, as it won't be able to borrow any more money to pay creditors.
Should this worry us? YES! The USA is the largest economy in the world. They owe everybody money, including you, me Europe in general and the UK in particular. So now we have not only the Eurozone up rue Merde sans pagaie, we have the Septics in the same boat. We now have the possibility of not just European contagion, but also Global debt contagion. What fun!
One outcome of this is that market F/X speculators are looking round for a currency where there is some semblance if financial stability, and believe it or not, relatively speaking we fit the bill.
UK - same old story
The Pound hasn't had the best of weeks, and yet it has benefited from events abroad, both in Europe and the US. Both this week's CBI report and consumer confidence data were poor. The outlook for the UK economy is still uncertain as we struggle to overcome the drag of the austerity package during a weak recovery phase.
Eurozone - guilty as charged?
The Euro has suffered this week for various reasons. Worse than expected German unemployment, a drop in economic sentiment and weak appetite at an Italian government bond auction all contributed to the Euro's woes. Fear of contagion in the Eurozone has not gone away and uncertainty is likely to slow any major Euro advance against the pound over the next few weeks. The European Sovereign Debt crisis continues to hit the heasdlines. In the short term the ECB has enough reserves to maintain stability, but with combined soveriegn funding requirements of over €80Bn during the next three months, the feeling is that they might be running out of breathing space. I can only see the debt problem getting worse over the rest of the year. The jury is still out over Greece and the second bailout, and it could get interesting.
What now?
Call me an optimist if you lie, but I think that the Euro is in trouble, and this could be the start of something good for sterling. I, for one, hope so! 1,1500 or higher would be a good signal by next week.
USA - showtime
Debt ceiling. To you and me, the amount of debt you have when you finally turn round and say 'No more'. In the case of the US it has a slightly different meaning, more like 'OK, how much more do we need?' That is until now, when a few quarrelsome senators have decided that a few thousand trillion dollars might just about be enough, much to the dismay of President Obama and everyone else who keeps the States running. If the debt ceiling isn't raised by Tuesday, The USA will start to default on its debts, as it won't be able to borrow any more money to pay creditors.
Should this worry us? YES! The USA is the largest economy in the world. They owe everybody money, including you, me Europe in general and the UK in particular. So now we have not only the Eurozone up rue Merde sans pagaie, we have the Septics in the same boat. We now have the possibility of not just European contagion, but also Global debt contagion. What fun!
One outcome of this is that market F/X speculators are looking round for a currency where there is some semblance if financial stability, and believe it or not, relatively speaking we fit the bill.
UK - same old story
The Pound hasn't had the best of weeks, and yet it has benefited from events abroad, both in Europe and the US. Both this week's CBI report and consumer confidence data were poor. The outlook for the UK economy is still uncertain as we struggle to overcome the drag of the austerity package during a weak recovery phase.
Eurozone - guilty as charged?
The Euro has suffered this week for various reasons. Worse than expected German unemployment, a drop in economic sentiment and weak appetite at an Italian government bond auction all contributed to the Euro's woes. Fear of contagion in the Eurozone has not gone away and uncertainty is likely to slow any major Euro advance against the pound over the next few weeks. The European Sovereign Debt crisis continues to hit the heasdlines. In the short term the ECB has enough reserves to maintain stability, but with combined soveriegn funding requirements of over €80Bn during the next three months, the feeling is that they might be running out of breathing space. I can only see the debt problem getting worse over the rest of the year. The jury is still out over Greece and the second bailout, and it could get interesting.
What now?
Call me an optimist if you lie, but I think that the Euro is in trouble, and this could be the start of something good for sterling. I, for one, hope so! 1,1500 or higher would be a good signal by next week.
Saturday, July 23, 2011
F/X Weekly Comment
A pretty quiet week in the currency markets really, with little to get excited about. That is if you are deaf, blind, and can't smell rotten fish at ten paces. In fact it was pure theatre, a hairsbreadth away from being totally momentous. Sarkozy and Merkel walked to the edge of the abyss, looked down, and nearly wet themselves (OK, I apologise in advance for the poor taste there). Then they reached for the cheque book and hoped for salvation ( I nearly put 'prayed' there, but I'm probably in enough trouble already).
Greece
Greece is up to its keftedes in 'merde'. It has been for a long time. It should never have been allowed to join the Euro in the first place; indeed it never passed the tests for entry. It is no surprise that it is one of the first countries to go bust. It is totally unsuited to the handcuffs that a single currency brings to its economy. That is actually an economy that runs on 'brown envelopes'. Fakelaki is the Greek word for it, and it equates to corruption.
So, having gone bust, it receives a €79bn bailout, and with it comes stringent doses of financial medicine. Too much for the Greeks to stomach, they threaten to default on their debt, but their debt is Euro debt, and that doesn't go down well in Brussels. Cue bailout number 2, this time for another €109bn, giving them longer to repay, and at lower interest rates. Oh, by the way, we'll let Ireland and Portugal have these lower rates too, just to keep them quiet.
Greece
Greece has absolutely no chance of repaying this debt, yet the powers that be insist on continually papering over the cracks. And this week, yet again, the market bought it, and the Euro rallied at the sight of firm and concisive action from European leaders. Now I very rarely get particularly het up over financial matters, but I cannot grasp this logic, unless of course it is based entirely in self-preservation on the part of market participants (surely not?). If I were a modern George Soros, with a few billion to use speculating in the currency markets, I'd be after the Euro. I'd be so short of the Euro that you'd have to spell it with fewer letters. 'Going short' by the way refers to selling something you haven't actually got, in the anticipation that you will be able to buy it at a later date to fulfil your debt at much lower cost.
And more Greece
This second bailout, to my mind, constitutes default, and it will be interesting to see if the rating agencies agree with me next week. If they do, justice could yet be done, and sterling may even get to 1.20 plus, where it should in my view be today. More likely though, the agencies will follow the herd, and we'll soon be struggling to hold on to the 1.12 level. If they have the nerve to call it as it is, and the market realises that it could have a lame duck in its sights (like sterling in the ERM in 1992) we could really have some fun...
Greece
Greece is up to its keftedes in 'merde'. It has been for a long time. It should never have been allowed to join the Euro in the first place; indeed it never passed the tests for entry. It is no surprise that it is one of the first countries to go bust. It is totally unsuited to the handcuffs that a single currency brings to its economy. That is actually an economy that runs on 'brown envelopes'. Fakelaki is the Greek word for it, and it equates to corruption.
So, having gone bust, it receives a €79bn bailout, and with it comes stringent doses of financial medicine. Too much for the Greeks to stomach, they threaten to default on their debt, but their debt is Euro debt, and that doesn't go down well in Brussels. Cue bailout number 2, this time for another €109bn, giving them longer to repay, and at lower interest rates. Oh, by the way, we'll let Ireland and Portugal have these lower rates too, just to keep them quiet.
Greece
Greece has absolutely no chance of repaying this debt, yet the powers that be insist on continually papering over the cracks. And this week, yet again, the market bought it, and the Euro rallied at the sight of firm and concisive action from European leaders. Now I very rarely get particularly het up over financial matters, but I cannot grasp this logic, unless of course it is based entirely in self-preservation on the part of market participants (surely not?). If I were a modern George Soros, with a few billion to use speculating in the currency markets, I'd be after the Euro. I'd be so short of the Euro that you'd have to spell it with fewer letters. 'Going short' by the way refers to selling something you haven't actually got, in the anticipation that you will be able to buy it at a later date to fulfil your debt at much lower cost.
And more Greece
This second bailout, to my mind, constitutes default, and it will be interesting to see if the rating agencies agree with me next week. If they do, justice could yet be done, and sterling may even get to 1.20 plus, where it should in my view be today. More likely though, the agencies will follow the herd, and we'll soon be struggling to hold on to the 1.12 level. If they have the nerve to call it as it is, and the market realises that it could have a lame duck in its sights (like sterling in the ERM in 1992) we could really have some fun...
Friday, July 15, 2011
F/X Weekly comment
I'm uneasy. The reason I'm uneasy is that I'm not used to getting things as right as I did last week. The pound finished the week at 1.1400, even higher than my anticipated rate of 1.1350, but who's going to worry about and extra 50 basis points? But will it last?
Stress tests
The results of those stress tests on 90 European banks were announced a few minutes ago, and the results seem to be quite interesting. The Euro has been under pressure all week in anticipation of these results, and the announcement came after close of business on Friday, presumably to avoid any great sell off. In the event it seems that only 8 banks have failed. So far they haven't been named, other than one minor regional German bank, Helaba, who fell out with the examiners. The act that only seven others failed could well be supportive for the Euro on Monday, assuming there are no big names on the list. There is however a school of thought that the tests were not hard enough (think GCSE V A-Level), and didn't for example take into account the possibility of a Greek default, which looks to be almost a certainty. This could lead to further trouble for the Euro in the coming weeks.
UK data
Sterling's bounce has not had much do with any improvement in the UK economic data. Most market forecasters had been calling for sterling to move lower as a result of all the poor data we have seen of late, but the Euro's debt issues have outweighed this for a change. Unemployment data during the week showed a sharp rise, adding to concerns that poor growth prospects may prompt more QE from the Bank of England. More concerns about high debt levels, the effect of harsh austerity measures and poor UK exports could keep sterling weak, particularly against currencies other than Euro. The risk then is that despite recent gains, many analysts are still saying sterling may struggle due to all the negative economic data we are seeing.
Which wins?
That, of course, is the crunch question, but I'm on a roll here. I got last week right by calling for a weak Euro, so I'm going to keep my chips on red and go for gold (such Ill-literacy). I think sterling will have done a great job if we manage to consolidate in the 1,14s, so fingers crossed!
Saturday, July 9, 2011
F/X Weekly comment
Don't you just love it when a plan comes together? All I apparently have to do is make a pessimistic forecast for sterling, and sure enough the green shoots of recovery might just have started to peep up through the dead grass. We finished the week at 1.1256, a whole lot higher than I expected, but welcome all the same. Apologies to anyone out there who profits from a weak pound (shame on you). It was a very interesting week in the F/X markets:
Interest rates
No prizes for correctly forecasting that UK rates would stay on hold and that the ECB would raise Euro rates by 0.25% to 1.5%, but the really important thing is what M. Trichet says afterwards. Unfortunately Merv doesn't say anything after his meeting, we have to wait 2 weeks for the minutes to be released. Very boring, very British.
Tricky Trichet though alluded to the fact that economic activity in the Eurozone seems to be slowing down. His words were backed-up by disappointing Italian Industrial Production numbers on Friday morning, along with German trade figures which showed that the Europe’s largest economy is becoming increasingly dependent on imports.
Although Merv doesn't comment on his meeting, he did announce that there would be no more money-printing (QE) at present. This also gave support to sterling. All 'fish to the grill' as I once heard a conference speaker say. To be fair, he was Italian, and I don't think he knew what grist was. .
Pigs
Portugal got the capital punishment this week, being downgraded a huge four notches by Moody's. The ECB promptly reacted by saying that they will continue to accept Portugal's bonds as collateral for loans, but then they don't have much choice, do they?
Stress
No, not the stress of having to write this stuff every weekend. Stress tests for banks. A bit like the end of term tests you used to have when education worked. There are results of stress tests for a large number of Eurozone banks due out next week, and they could make interesting reading. There is a rumour that the main five Italian banks have passed, but I think the National bank of Greece is looking a bit glum, and Irish eyes don't seem to be smiling.
UK economy
Not normally worth a mention, I know, but watch out. Last month's PPI input and output prices came in rather better than expected on Friday. Now you don't hear that very often, do you?
Where now?
It really pains me to say that I think we might have the start of something good for sterling here, because we all know that that would be the kiss of death to the pound. Actually though I am sensible enough to realise that nothing I either think, say or write will make the slightest bit of difference. 1.1350 next week please.
Interest rates
No prizes for correctly forecasting that UK rates would stay on hold and that the ECB would raise Euro rates by 0.25% to 1.5%, but the really important thing is what M. Trichet says afterwards. Unfortunately Merv doesn't say anything after his meeting, we have to wait 2 weeks for the minutes to be released. Very boring, very British.
Tricky Trichet though alluded to the fact that economic activity in the Eurozone seems to be slowing down. His words were backed-up by disappointing Italian Industrial Production numbers on Friday morning, along with German trade figures which showed that the Europe’s largest economy is becoming increasingly dependent on imports.
Although Merv doesn't comment on his meeting, he did announce that there would be no more money-printing (QE) at present. This also gave support to sterling. All 'fish to the grill' as I once heard a conference speaker say. To be fair, he was Italian, and I don't think he knew what grist was. .
Pigs
Portugal got the capital punishment this week, being downgraded a huge four notches by Moody's. The ECB promptly reacted by saying that they will continue to accept Portugal's bonds as collateral for loans, but then they don't have much choice, do they?
Stress
No, not the stress of having to write this stuff every weekend. Stress tests for banks. A bit like the end of term tests you used to have when education worked. There are results of stress tests for a large number of Eurozone banks due out next week, and they could make interesting reading. There is a rumour that the main five Italian banks have passed, but I think the National bank of Greece is looking a bit glum, and Irish eyes don't seem to be smiling.
UK economy
Not normally worth a mention, I know, but watch out. Last month's PPI input and output prices came in rather better than expected on Friday. Now you don't hear that very often, do you?
Where now?
It really pains me to say that I think we might have the start of something good for sterling here, because we all know that that would be the kiss of death to the pound. Actually though I am sensible enough to realise that nothing I either think, say or write will make the slightest bit of difference. 1.1350 next week please.
Friday, July 1, 2011
F/X Weekly Comment
Ah good, all is well with the world again, and normal service has been renewed. My forecast last week has proved to be just about as accurate as George Osborne's growth predictions. I think I can leave the headers in place from last week, but I'll have another go at the content:
Greek Debt (again)
The pound lurched lower against the Euro this week as the Greek austerity vote passed predictably through parliament. In the short term, at least, a Greece default is unlikely, and this is deemed to be positive for the Euro. Within a couple of weeks a second bailout package will be agreed, so there is scope for a further boost to the single currency. The plain fact is though that the Eurozone debt problems have in no way been resolved, only deferred, but any loss in Euro sentiment is being countered by the abject surrender of sterling and the bleak outlook of the U.K economy.
Pathetic Sterling
Harsh? Definitely not. Friday's PMI data showing that expansion in the UK’s manufacturing sector dropped to its lowest rate in 21 months in June brought the pound under further selling pressure on the day. Even the saving grace that Asian and Eurozone data releases were equally weak didn't manage to get sterling up above 1.1100. The pound has fallen 9.1 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the dollar. Worsening economic growth has prompted traders to reduce bets on higher rates, and investors are betting that 3M (Merv and his Merry Men) will start to raise borrowing costs next May. As recently as February, data was pointing to a rate increase in May of this year.
Where now?
I think for all our sakes that I need to drastically reduce any sense of optimism for sterling at present. We tested the 1.10 level this week, and unless something spectacular happens, we could see the pound break down through that level next week.
A bientot, Rob
Greek Debt (again)
The pound lurched lower against the Euro this week as the Greek austerity vote passed predictably through parliament. In the short term, at least, a Greece default is unlikely, and this is deemed to be positive for the Euro. Within a couple of weeks a second bailout package will be agreed, so there is scope for a further boost to the single currency. The plain fact is though that the Eurozone debt problems have in no way been resolved, only deferred, but any loss in Euro sentiment is being countered by the abject surrender of sterling and the bleak outlook of the U.K economy.
Pathetic Sterling
Harsh? Definitely not. Friday's PMI data showing that expansion in the UK’s manufacturing sector dropped to its lowest rate in 21 months in June brought the pound under further selling pressure on the day. Even the saving grace that Asian and Eurozone data releases were equally weak didn't manage to get sterling up above 1.1100. The pound has fallen 9.1 percent in the past 12 months, making it the second-worst performer among 10 developed-market currencies after the dollar. Worsening economic growth has prompted traders to reduce bets on higher rates, and investors are betting that 3M (Merv and his Merry Men) will start to raise borrowing costs next May. As recently as February, data was pointing to a rate increase in May of this year.
Where now?
I think for all our sakes that I need to drastically reduce any sense of optimism for sterling at present. We tested the 1.10 level this week, and unless something spectacular happens, we could see the pound break down through that level next week.
A bientot, Rob
Friday, June 24, 2011
F/X Weekly Comment
Somehow it doesn't feel right not having to apologise for another wildly inaccurate forecast from the previous week. Maybe it's because I'm scared of missing the glory of (occasionally) getting it right. It might even have happened last week, as we have ended up virtually unchanged at just below the 1.1300 level. The equivalent of a 0-0 scoreline then, but there was plenty of action this week.
Greek Debt (again)
You might be forgiven for assuming that having in your midst a country where economic calamity has reduced its citizens to rioting in the streets against austerity measures might rock the boat somewhat in your desire for a stable joint currency. But no, the good ship Euro sails blithely on into the teeth of the approaching storm, and nothing is apparently happening to divert it. After a while, one begins to doubt whether the storm is actually there. What if all those dark clouds actually deliver is a few showers? I remain firmly in the tornado camp.
Pathetic Sterling
Harsh? No, I don't think so. The Euro really ought to be in deep trouble at the moment. If those Greek rioters get their way, it still might be, but what are Merv and his merry band of men doing? Sitting around discussing another dose of home grown inflation in the form of more QE, that's what. QE is a bit like giving a fat man the key to a chocolate factory and suggesting that it might make him a bit more likely to diet later.
More storms
The more of the current mess I see, the more I am becoming convinced that the Euro will not be around in its current form in 5 years time. Greece, Spain, Portugal and Ireland, maybe even Italy, are simply not in the same league as their more northern neighbours. I see a great need for a first and second division Euro, with the weaker members free to weaken their currencies and have some control over interest rates. If they the succeeded in pulling their economies round, they could be promoted back into the top tier.
Perhaps not the ideal subject for a weekly column, but I think I might revert back to the theme occasionally.
Where now?
This is where I see the sense in not making predictions, but here goes... I think Greece is still up there as a potential flashpoint for the next few weeks. They may have been voted a second bailout package, but the first have to accept the austerity measure, and somehow I don't think Stavros is all that keen. 1.14 and above for me by next week.
Greek Debt (again)
You might be forgiven for assuming that having in your midst a country where economic calamity has reduced its citizens to rioting in the streets against austerity measures might rock the boat somewhat in your desire for a stable joint currency. But no, the good ship Euro sails blithely on into the teeth of the approaching storm, and nothing is apparently happening to divert it. After a while, one begins to doubt whether the storm is actually there. What if all those dark clouds actually deliver is a few showers? I remain firmly in the tornado camp.
Pathetic Sterling
Harsh? No, I don't think so. The Euro really ought to be in deep trouble at the moment. If those Greek rioters get their way, it still might be, but what are Merv and his merry band of men doing? Sitting around discussing another dose of home grown inflation in the form of more QE, that's what. QE is a bit like giving a fat man the key to a chocolate factory and suggesting that it might make him a bit more likely to diet later.
More storms
The more of the current mess I see, the more I am becoming convinced that the Euro will not be around in its current form in 5 years time. Greece, Spain, Portugal and Ireland, maybe even Italy, are simply not in the same league as their more northern neighbours. I see a great need for a first and second division Euro, with the weaker members free to weaken their currencies and have some control over interest rates. If they the succeeded in pulling their economies round, they could be promoted back into the top tier.
Perhaps not the ideal subject for a weekly column, but I think I might revert back to the theme occasionally.
Where now?
This is where I see the sense in not making predictions, but here goes... I think Greece is still up there as a potential flashpoint for the next few weeks. They may have been voted a second bailout package, but the first have to accept the austerity measure, and somehow I don't think Stavros is all that keen. 1.14 and above for me by next week.
Friday, June 17, 2011
F/X Weekly Comment
Ah well, wrong again, but we're getting used to that, aren't we? Actually I wasn't too far away. As per Les Dawson, all the right notes were there, but not necessarily in the right order. Sterling pushed higher this week, nudging 1.1400, despite a rather nasty surprise earlier in the week. It then fell at the final fence and ended at 1.1300. Here's how it went.
UK Retail Sales
Down 1.6% in May. That's at least twice as bad as anyone expected. As a result, rather unsurprisingly, hopes of UK interest rate rises this year are disappearing down the tubes, whereas the Euro rate will apparently rise regardless of its other problems. Higher interest rates equals better return on deposits, so more people buy the currency. The more people buy something, the more expensive it gets, that's the law of supply and demand. If it's the Euro the currency markets are buying, not sterling, the Euro gets stronger and the pound weaker. You guessed it, the rate goes down. So why has it gone up?....
Greek Debt
To the rescue. Greece’s parliament must pass stringent spending cuts and undertake a widespread privatisation programme in order to receive its next tranche of bail-out funds from the IMF. and analysts feel that there is a higher chance of this happening if Greece has a clear leader in place. Rioters took to the streets in Athens on Thursday to protest against the proposed cuts and the yield on two year Greek bonds rose to an astronomical 28.6%. The Greek situation remains tense, to say the least. This is the king of the PIGS. Having been baled out once, they are still shipping water.
The Euro fell to its lowest since 2009 against a basket of currencies after support declined for the Greek Prime Minister. There were further divisions in the ECB and German official’s camps over the involvement of the private sector in resolving the crisis. The ECB and France want to avoid a declaration of default, while Germany wants private-sector involvement as the cost of continually asking their taxpayers to bail out Europe’s basket cases is causing political fallout.
The lack of a deal pushed bond yields of Greece to 17.9%, their highest level since the introduction of the euro in 1999, and Moody's placed France's top three banks on review for a possible downgrade, citing the banks' exposure to Greek debt.
Storm Clouds Gathering
It goes without saying that political developments from Greece will be the main driver of things this weekend. There are reports that the Finance Minister Papaconstantinou has been replaced but at present that is unconfirmed. There are also meetings between Angela Merkel and Nicolas Sarkozy in Berlin and of EU finance ministers on Sunday and Monday; there is a lot of risk out there and I don't think speculators will want to be holding euros at the moment.
Short term respite for sterling is possible then, but in the medium term I see more problems for sterling. These economic data indicators are not getting any better, and if the euro does shrug off Greece and start to raise rates aggressively, we could be in trouble.
I'm going to start keeping clear of weekly forecasts. I've said many times that it's a mugs game, and if you play that game for too long you start to look like one!
UK Retail Sales
Down 1.6% in May. That's at least twice as bad as anyone expected. As a result, rather unsurprisingly, hopes of UK interest rate rises this year are disappearing down the tubes, whereas the Euro rate will apparently rise regardless of its other problems. Higher interest rates equals better return on deposits, so more people buy the currency. The more people buy something, the more expensive it gets, that's the law of supply and demand. If it's the Euro the currency markets are buying, not sterling, the Euro gets stronger and the pound weaker. You guessed it, the rate goes down. So why has it gone up?....
Greek Debt
To the rescue. Greece’s parliament must pass stringent spending cuts and undertake a widespread privatisation programme in order to receive its next tranche of bail-out funds from the IMF. and analysts feel that there is a higher chance of this happening if Greece has a clear leader in place. Rioters took to the streets in Athens on Thursday to protest against the proposed cuts and the yield on two year Greek bonds rose to an astronomical 28.6%. The Greek situation remains tense, to say the least. This is the king of the PIGS. Having been baled out once, they are still shipping water.
The Euro fell to its lowest since 2009 against a basket of currencies after support declined for the Greek Prime Minister. There were further divisions in the ECB and German official’s camps over the involvement of the private sector in resolving the crisis. The ECB and France want to avoid a declaration of default, while Germany wants private-sector involvement as the cost of continually asking their taxpayers to bail out Europe’s basket cases is causing political fallout.
The lack of a deal pushed bond yields of Greece to 17.9%, their highest level since the introduction of the euro in 1999, and Moody's placed France's top three banks on review for a possible downgrade, citing the banks' exposure to Greek debt.
Storm Clouds Gathering
It goes without saying that political developments from Greece will be the main driver of things this weekend. There are reports that the Finance Minister Papaconstantinou has been replaced but at present that is unconfirmed. There are also meetings between Angela Merkel and Nicolas Sarkozy in Berlin and of EU finance ministers on Sunday and Monday; there is a lot of risk out there and I don't think speculators will want to be holding euros at the moment.
Short term respite for sterling is possible then, but in the medium term I see more problems for sterling. These economic data indicators are not getting any better, and if the euro does shrug off Greece and start to raise rates aggressively, we could be in trouble.
I'm going to start keeping clear of weekly forecasts. I've said many times that it's a mugs game, and if you play that game for too long you start to look like one!
Friday, June 10, 2011
F/X weekly comment
I've just noticed that I managed to get through all of my article last week without once mentioning the £/€ rate. This is obviously the way forward, for me anyway! I did in fact get the direction right this week, stabbing a guess at a rise from last week's levels, which were in fact in the low 1.12s. This afternoon (Friday the 10th) we have actually crept over 1.1300. Not a huge improvement, but every bit helps. How did we make this welcome step?
PPI
Last week we talked about PMI, this week we have PPI, which is the Producer Price Index, which measures inflation of input and output pricing. Following yesterday's rate decision (no change, in case you hadn't heard) , the UK released new inflation data which showed a decline to ease inflationary pressure concerns, yet inflation rates are expected to remain high for a while.
Today's data showed that UK annual PPI output for May reached 5.3%, the fastest since 2008, from the revised 5.5% and PPI input for the year ending May retreated to 15.7% from the revised 17.9%. Merv in his last open letter to George Osborne revealed that inflation will probably move between 4% and 5% over the coming few months to remain above target in 2011 before it comes back in 2012, clarifying that the rise in energy prices and the VAT along with the sterling's previous depreciation were the main reasons behind the rapid price acceleration.
Whilst none of this is particularly good, it wasn't as bad as many onlookers had feared, and we had a case of bad news bringing respite for the pound.
Interest Rates
Euro this time. As with sterling, the ECB kept euro rates on hold, but did indicate that they will probably rise in July. This was also expected, and as investors booked profits on the Euro (by selling their positions) it caused the £/€ rate to rise slightly.
Claude Trichet also signalled that further rate rises would come in the EU, but perhaps not as fast as some analysts were expecting. This reduction in future rate hike expectations also helped slightly to push the pound higher.
Where now?
Without something big to push the markets either way, sterling will continue to bounce around at these levels. There does seem to be something brewing about a second Greek bailout, but I don't expect anything for a few weeks yet. 1.1250 for me next week.
PPI
Last week we talked about PMI, this week we have PPI, which is the Producer Price Index, which measures inflation of input and output pricing. Following yesterday's rate decision (no change, in case you hadn't heard) , the UK released new inflation data which showed a decline to ease inflationary pressure concerns, yet inflation rates are expected to remain high for a while.
Today's data showed that UK annual PPI output for May reached 5.3%, the fastest since 2008, from the revised 5.5% and PPI input for the year ending May retreated to 15.7% from the revised 17.9%. Merv in his last open letter to George Osborne revealed that inflation will probably move between 4% and 5% over the coming few months to remain above target in 2011 before it comes back in 2012, clarifying that the rise in energy prices and the VAT along with the sterling's previous depreciation were the main reasons behind the rapid price acceleration.
Whilst none of this is particularly good, it wasn't as bad as many onlookers had feared, and we had a case of bad news bringing respite for the pound.
Interest Rates
Euro this time. As with sterling, the ECB kept euro rates on hold, but did indicate that they will probably rise in July. This was also expected, and as investors booked profits on the Euro (by selling their positions) it caused the £/€ rate to rise slightly.
Claude Trichet also signalled that further rate rises would come in the EU, but perhaps not as fast as some analysts were expecting. This reduction in future rate hike expectations also helped slightly to push the pound higher.
Where now?
Without something big to push the markets either way, sterling will continue to bounce around at these levels. There does seem to be something brewing about a second Greek bailout, but I don't expect anything for a few weeks yet. 1.1250 for me next week.
Friday, June 3, 2011
F/X weekly comment
As predicted last week, sterling went down. Yes, I know I said I thought sterling should go up, but I definitely said this means it will probably go down, and down it went. Not down the plughole yet, but definitely swirling in that direction. 400 points in a single week is a very poor performance indeed. So how did it happen?
UK PMI
2 doses of very nasty medicine. PMI stands for Purchasing Managers Index, and we have them for different sectors of the economy. This week we had figures for manufacturing and for services sectors. Purchasing managers are tasked with gauging future demand, and adjusting orders for materials accordingly. The PMI summarizes the opinions of these executives to give a picture of the future of the sector. A higher PMI indicates that materials purchases are increasing and that the economic outlook is positive. Alternately, a lower PMI means orders for materials are down and the future outlook is less favourable. By nature, the figure is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole.
The services sector PMI fell to 53.8 in May, down from 54.3 in April. The service sector is by far the biggest economic sector in the UK and the fall was blamed partly on the overlap of bank holidays and partly because of subdued consumer demand.
Earlier in the week the PMI index for the manufacturing sector fell to its lowest level for 20 months. Separate data released by the Office for National Statistics (ONS) showed that construction orders fell by 23 per cent from the previous quarter and down by 18 per cent compared with the same period the previous year.
Euro
Despite all the factors listed in last week's article, and especially as eurozone debt concerns continue, the ECB’s willingness to raise interest rates is seen as positive for further increases, with the region’s largest economy Germany backing the resolution of the debt crisis and many investors taking that as a cue to support the single currency further. Eurozone inflation continues to rise, an indication to many that the Euro may benefit from further rate increases as opposed to the flat sentiment over rates coming from the Merv and his merry men.
So where from here? I have no shame at all in suggesting that you may as well toss a coin this week. I for one do not have a clue where it's going to end up this time next week. If I had to make a guess, it would be slightly higher than here, just on the yoyo effect of the markets.
UK PMI
2 doses of very nasty medicine. PMI stands for Purchasing Managers Index, and we have them for different sectors of the economy. This week we had figures for manufacturing and for services sectors. Purchasing managers are tasked with gauging future demand, and adjusting orders for materials accordingly. The PMI summarizes the opinions of these executives to give a picture of the future of the sector. A higher PMI indicates that materials purchases are increasing and that the economic outlook is positive. Alternately, a lower PMI means orders for materials are down and the future outlook is less favourable. By nature, the figure is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole.
The services sector PMI fell to 53.8 in May, down from 54.3 in April. The service sector is by far the biggest economic sector in the UK and the fall was blamed partly on the overlap of bank holidays and partly because of subdued consumer demand.
Earlier in the week the PMI index for the manufacturing sector fell to its lowest level for 20 months. Separate data released by the Office for National Statistics (ONS) showed that construction orders fell by 23 per cent from the previous quarter and down by 18 per cent compared with the same period the previous year.
Euro
Despite all the factors listed in last week's article, and especially as eurozone debt concerns continue, the ECB’s willingness to raise interest rates is seen as positive for further increases, with the region’s largest economy Germany backing the resolution of the debt crisis and many investors taking that as a cue to support the single currency further. Eurozone inflation continues to rise, an indication to many that the Euro may benefit from further rate increases as opposed to the flat sentiment over rates coming from the Merv and his merry men.
So where from here? I have no shame at all in suggesting that you may as well toss a coin this week. I for one do not have a clue where it's going to end up this time next week. If I had to make a guess, it would be slightly higher than here, just on the yoyo effect of the markets.
Friday, May 27, 2011
F/X weekly comment
I'm going to upset the applecart well and truly this week, and return to a 'bullish' stance on sterling. For the happily uninitiated, this means I think the pound is going to go up. The bad news is that this probably means it will go down, but it just seems to me that most of the merde flying around in the currency markets at the moment seems to be sticking to the Euro.
Sweet 16
For a few hours on Thursday we actually saw sterling trading in the 1.16's for the first time since the 14th March. There is a lot of Far-East interest in buying the Euro when it's cheap at the moment, and that had the effect of bringing the rate down again into the mid 1.15's, but sterling still feels buoyant, and it wouldn't surprise me at all if the financial press over the weekend were to be anti-Euro.
Some sterling news
First quarter UK GDP was confirmed at up 0.5%, which was important, as any lower revision would have been very bad news indeed. As it was, it kept sterling firm, and even allowed it to ride the potential storm of the threat of downgrading for a host of UK banks and building societies. I tend to think of this as rating agencies trying to flex their muscles, when in fact they have already proved that they are a very weak link in the financial chain.
Euro news
Nearly all of it bad. Epitomised by one Mr Juncker. Jean-Claude Juncker is the head of the Eurogroup, a clutch of EU finance ministers. Known to some as 'Mr Euro' or perhaps 'Herr Euro', he put the skids under his pet project by stating that the IMF may be unwilling to pay the next tranche of the bailout package to Greece. Who knows, maybe paying the bailout money for DSK has drained the coffers? That sent sterling crashing through the 1.16 level, as mentioned earlier. Not because sterling was particularly strong of course, but because the Euro was weakened.
Isn't that old news though? Maybe, but the fact is that the bad news is starting to stack up for the Euro. Look at this list:
Italy put on downgrade watch by S&P (more muscle flexing by wimps, but still bad news.
Anti government protests over unemployment and economy in Spain.
Belgium has had no government for nearly a year, and may split.
Angela Merkel’s Christian Democrats lose control of Baden-Wurttemburg for the first time since 1953.
IMF to move away from European control after DSK caught with his trousers down?
Portugal could be heading down Belgian lines as political crisis grows.
Makes the UK political and economic scene look positively benign, doesn't it? It may take a few weeks, but we might even start to edge up towards 1.20 again.
Now there's there kiss of death for you...
Sweet 16
For a few hours on Thursday we actually saw sterling trading in the 1.16's for the first time since the 14th March. There is a lot of Far-East interest in buying the Euro when it's cheap at the moment, and that had the effect of bringing the rate down again into the mid 1.15's, but sterling still feels buoyant, and it wouldn't surprise me at all if the financial press over the weekend were to be anti-Euro.
Some sterling news
First quarter UK GDP was confirmed at up 0.5%, which was important, as any lower revision would have been very bad news indeed. As it was, it kept sterling firm, and even allowed it to ride the potential storm of the threat of downgrading for a host of UK banks and building societies. I tend to think of this as rating agencies trying to flex their muscles, when in fact they have already proved that they are a very weak link in the financial chain.
Euro news
Nearly all of it bad. Epitomised by one Mr Juncker. Jean-Claude Juncker is the head of the Eurogroup, a clutch of EU finance ministers. Known to some as 'Mr Euro' or perhaps 'Herr Euro', he put the skids under his pet project by stating that the IMF may be unwilling to pay the next tranche of the bailout package to Greece. Who knows, maybe paying the bailout money for DSK has drained the coffers? That sent sterling crashing through the 1.16 level, as mentioned earlier. Not because sterling was particularly strong of course, but because the Euro was weakened.
Isn't that old news though? Maybe, but the fact is that the bad news is starting to stack up for the Euro. Look at this list:
Italy put on downgrade watch by S&P (more muscle flexing by wimps, but still bad news.
Anti government protests over unemployment and economy in Spain.
Belgium has had no government for nearly a year, and may split.
Angela Merkel’s Christian Democrats lose control of Baden-Wurttemburg for the first time since 1953.
IMF to move away from European control after DSK caught with his trousers down?
Portugal could be heading down Belgian lines as political crisis grows.
Makes the UK political and economic scene look positively benign, doesn't it? It may take a few weeks, but we might even start to edge up towards 1.20 again.
Now there's there kiss of death for you...
Saturday, May 14, 2011
Weekly F/X Comment
Sterling and the Euro slugged it out all week, and sterling survived to end the week marginally higher than close of business last Friday at 1.1461, which of course confounded my theory that we would end up looking at the 1.12 level again for the time being. My main concern last week was the quarterly inflation report to be issued on Wednesday, but in fact this provided a boost for sterling:
Inflation fears rise in UK
Sterling was boosted on Wednesday as the B of E Inflation Report showed more worries than expected on the horizon on the inflation front. This resurrected ideas of an early interest rate hike, and sterling surged ahead against the Euro. The common currency soon fought back however, with more news on the Greek front.
Greece angst
The Euro lost ground to nearly every trading counterparty early in the week with more doubts surfacing over Portugal, and especially Greece. The banking systems are the main worry, with fears that the perhaps unknown depth of the Greek problem could throw the whole Euro banking system into turmoil. Sterling of course benefitted from this, especially with the boost of the inflation report to help it.
Another rabbit
One exasperating thing about the Euro is its ability to ‘pull rabbits out of the hat’ when up against the proverbial wall. There are so many things to take into consideration when you have a multitude of countries sharing the same currency. It is easy to focus on a problem in one area, without necessarily appreciating the necessary sense of scale required to take on beard news from other areas. Just when the doubters are focussing on Greece, the ECB will pull out a great set of growth figures for France and Germany. Add to that some decent figures for corporate growth in th Eurozone as a whole, and throw in the odd comment about future Euro rate rises, and all of a sudden the Euro looks far less of a basket case than it did ten minutes earlier.
Manipulation?
Far be it from me to suggest any great plot at work here. I’m not suggesting anything of the kind. What I am saying is that there are times when currency flows will be guided not by facts, but by structured presentation of those facts. What gets said and when is critical to currency movement in the short term. Over a longer period of time fundamental issues take control, but in the short term forecasting remains, as I am a prime example, a mugs game.
I don’t think sterling has much scope for growth in the current circumstances, so I’m sticking with my return to the 1,12s for now. I’m just not sure how quickly it will happen.
Inflation fears rise in UK
Sterling was boosted on Wednesday as the B of E Inflation Report showed more worries than expected on the horizon on the inflation front. This resurrected ideas of an early interest rate hike, and sterling surged ahead against the Euro. The common currency soon fought back however, with more news on the Greek front.
Greece angst
The Euro lost ground to nearly every trading counterparty early in the week with more doubts surfacing over Portugal, and especially Greece. The banking systems are the main worry, with fears that the perhaps unknown depth of the Greek problem could throw the whole Euro banking system into turmoil. Sterling of course benefitted from this, especially with the boost of the inflation report to help it.
Another rabbit
One exasperating thing about the Euro is its ability to ‘pull rabbits out of the hat’ when up against the proverbial wall. There are so many things to take into consideration when you have a multitude of countries sharing the same currency. It is easy to focus on a problem in one area, without necessarily appreciating the necessary sense of scale required to take on beard news from other areas. Just when the doubters are focussing on Greece, the ECB will pull out a great set of growth figures for France and Germany. Add to that some decent figures for corporate growth in th Eurozone as a whole, and throw in the odd comment about future Euro rate rises, and all of a sudden the Euro looks far less of a basket case than it did ten minutes earlier.
Manipulation?
Far be it from me to suggest any great plot at work here. I’m not suggesting anything of the kind. What I am saying is that there are times when currency flows will be guided not by facts, but by structured presentation of those facts. What gets said and when is critical to currency movement in the short term. Over a longer period of time fundamental issues take control, but in the short term forecasting remains, as I am a prime example, a mugs game.
I don’t think sterling has much scope for growth in the current circumstances, so I’m sticking with my return to the 1,12s for now. I’m just not sure how quickly it will happen.
Saturday, May 7, 2011
F/X weekly comment
Normal service is resumed this week, with my forecast of sterling down in the 1.12s meeting up with the reality of the pound ending the week at 1.1430! A nice way to be wrong though, unless you are heading back to the UK, but I think the majority, me included, like to see as high a rate as possible. Not only was I wrong in where we ended up, but the pound actually plumbed some severe depths during the week, hitting 1.1045 at one point. Then we had a 3.5% swing between Wednesday afternoon and Friday evening.
A game of two halves - Monday to Wednesday
Same old story for the pound. Data released on Tuesday showed that the UK's manufacturing sector grew at its weakest pace for seven months in April. This data reduced even more the likelihood of an interest rate rise later in the week. Coupled with the likelihood of a series of Euro rate hikes this summer, it is not exactly surprising that the pound headed south at a fair lick, and at one point looked like it might collapse below the 1.10 level.
Second half fightback - Wednesday to Friday
I don't think anyone saw this coming. Certainly not me anyway.
On Thursday both the BoE (Merve and his mates) and the ECB left interest rates on hold as expected. What rocked the boat was the comments from the ECB president, Jean Claude Trichet. He adopted a much softer stance on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to take profits on the Euro's gains versus sterling earlier in the week. That started the ball rolling.
On Friday morning the markets were eagerly awaiting the UK PPI (Producer Price Index) data, looking for a poor figure to send the pound back down to levels seen earlier in the week. In the event, the PPI figures were much better than expected. Still down, but down by nowhere near as much as the market had anticipated. Thus the expected move down soon turned into a further surge for the pound.
In addition to all of this, there was an important piece of corporate news going on in the background. Glencore, a huge multinational commodities company, was to launch shares on the UK stock market. If you want those shares, you need to have sterling. What happens if sterling is in demand? The rate goes up.
All good fun, but where do we go from here? Being a naturally cautious person, I'm inclined to think that this is unlikely to be the start of the great sterling revival, but I would love to be proved wrong. I back sterling's ability to shoot itself in the foot at any opportunity, and there is every opportunity next week, the Merve's quarterly inflation report.
I hate to say it, but I think the markets will sell sterling, and we could be down towards 1.12 levels again soon.
A game of two halves - Monday to Wednesday
Same old story for the pound. Data released on Tuesday showed that the UK's manufacturing sector grew at its weakest pace for seven months in April. This data reduced even more the likelihood of an interest rate rise later in the week. Coupled with the likelihood of a series of Euro rate hikes this summer, it is not exactly surprising that the pound headed south at a fair lick, and at one point looked like it might collapse below the 1.10 level.
Second half fightback - Wednesday to Friday
I don't think anyone saw this coming. Certainly not me anyway.
On Thursday both the BoE (Merve and his mates) and the ECB left interest rates on hold as expected. What rocked the boat was the comments from the ECB president, Jean Claude Trichet. He adopted a much softer stance on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to take profits on the Euro's gains versus sterling earlier in the week. That started the ball rolling.
On Friday morning the markets were eagerly awaiting the UK PPI (Producer Price Index) data, looking for a poor figure to send the pound back down to levels seen earlier in the week. In the event, the PPI figures were much better than expected. Still down, but down by nowhere near as much as the market had anticipated. Thus the expected move down soon turned into a further surge for the pound.
In addition to all of this, there was an important piece of corporate news going on in the background. Glencore, a huge multinational commodities company, was to launch shares on the UK stock market. If you want those shares, you need to have sterling. What happens if sterling is in demand? The rate goes up.
All good fun, but where do we go from here? Being a naturally cautious person, I'm inclined to think that this is unlikely to be the start of the great sterling revival, but I would love to be proved wrong. I back sterling's ability to shoot itself in the foot at any opportunity, and there is every opportunity next week, the Merve's quarterly inflation report.
I hate to say it, but I think the markets will sell sterling, and we could be down towards 1.12 levels again soon.
Subscribe to:
Posts (Atom)
Posts
