Listen
Yes,OK,I can hear the fat lady singing. I think we can say with a fair degree of certainty that sterling will not end the month at 1.2300 or anywhere near it. Definitely a mugs game this f/x forecasting! Sterling has taken a big hit this week after a series if body blows from market data releases. The latest was a big drop in consumer confidence, indicating the latest round of government spending cuts and the VAT rise is hitting consumers where it hurts most – in their pockets. This was the sharpest fall since 1992 and the lowest reading in nearly two years.
Before that we had an absolute shocker of a GDP number which showed that the UK economy not only failed to grow I the final quarter of 2011, it actually shrank. For a while some of the optimists amongst market commentators pointed at the adverse weather conditions, but Germany’s weather was the same as ours, and their economy grew strongly in the same period.
Speaking of Germany, I’m writing this article in a hotel room in Berlin. Germany is impressive. Big and strong. They don’t do things by halves here. There is a fishtank in the lobby. Nothing very impressive about that? Well this fishtank has 1500 tropical fish in it. It holds 1.5 million litres of water. It is conical, 20 metres high, and the lift goes up through it. That is one big fishtank. Germany is like a big merc or a beamer. By comparison France is a clio, and I’m very much afraid that at the moment the UK is a Nissan Sunny, without the sun.
The markets are likely to be wary of the possibility for further poor UK data in the coming weeks, watching closely for signs that coalition austerity measures are putting too much of a strain on the economy. They will also be looking for clues as to monetary policy as rising inflation becomes an ongoing concern.
Reasons to be cheerful?
One
Germany is one side of the euro story. If all the member states were as strong the euro would be invincible. Thankfully , they’re not.
Two
It won’t take much more poor economic data and inflation fears to bring UK interest rises back into the picture, and that may help sterling.
Three
As bad as this week has been, we still have sterling over 1.1650. That is really quite surprising (to me anyway), and quite reassuring. Supply and demand decides rates, and there is apparently enough demand for sterling to keep it’s head above water.
Not too much happening his week, which could be a problem for the pound. No news is not necessarily good news, and rumour can be more harmful than fact. I think we will do well to consolidate above the 1.1500 level this week, but I think it will happen, and I’m looking for 1.1725 by next Friday.
Sunday, January 30, 2011
Sunday, January 23, 2011
Hi everyone. I’ve been a bit ‘disconnected’ from the to-ing and fro-ing of the sterling/euro market this week. I suppose it’s no surprise that our favourite exchange rate hardly warrants a second glance over in the pound stalls, and I’ve been dashing round Greater Brittany doing the family rounds since last Monday. I do however remember calling for 1.2300 before the month’s out, and checking on google this morning I see that my forecast is still a little, er, lacking in accuracy? I’m closer than some though. I asked a group in my old local in Chelmsford on Friday night what they thought the current rate was. Two said about 1.17 or 1.18 (spot on); one said 1.84 (miles away but I could see where he was coming from, as the euro against sterling is about 0.84), and the last said about 1 to 1, which means he’s probably bought a sandwich on Ryanair recently.
I have also to confess that I’ve been a bit starved of information this week. Modern life these days means that houses with young children rarely have the news on television. That and the fact that my latest piece of technology stubbornly refuses to link up with any wi-fi signals has left me in a strange feeling of limbo. Not comfortable for someone with a bad back I can tell you.
I can however make an educated guess as to what has been going on this week. Retail sales figures for the Christmas period will have been weak. What a surprise. Did it snow at all? That will have been enough to put the wind up sterling though, and the whispering voices will be out in force casting doubts about the UK economies ability to recover this year when saddled with the austerity package. A load of old tosh I (still) say (for now). For me the euro is still in deeper merde than sterling, and I’ll hang on to my 1.23 forecast til the fat lady has sung.
I’m not sure that I will have the chance to be much more informative next week though. I’m going to swap dear old blighty for four days in Berlin from this Thursday. It will be interesting to see life from the political heart of the Euro powerhouse. I’ll be there for Spectrum’s annual conference, which for any doubters amongst you is a serious financial conference, bringing together over 40 Spectrum advisers from 6 European counties, along with financial experts from many fields, including banking, investments and fund management companies. Jolly? Of course not...
Auf wiedersehen, Rob
I have also to confess that I’ve been a bit starved of information this week. Modern life these days means that houses with young children rarely have the news on television. That and the fact that my latest piece of technology stubbornly refuses to link up with any wi-fi signals has left me in a strange feeling of limbo. Not comfortable for someone with a bad back I can tell you.
I can however make an educated guess as to what has been going on this week. Retail sales figures for the Christmas period will have been weak. What a surprise. Did it snow at all? That will have been enough to put the wind up sterling though, and the whispering voices will be out in force casting doubts about the UK economies ability to recover this year when saddled with the austerity package. A load of old tosh I (still) say (for now). For me the euro is still in deeper merde than sterling, and I’ll hang on to my 1.23 forecast til the fat lady has sung.
I’m not sure that I will have the chance to be much more informative next week though. I’m going to swap dear old blighty for four days in Berlin from this Thursday. It will be interesting to see life from the political heart of the Euro powerhouse. I’ll be there for Spectrum’s annual conference, which for any doubters amongst you is a serious financial conference, bringing together over 40 Spectrum advisers from 6 European counties, along with financial experts from many fields, including banking, investments and fund management companies. Jolly? Of course not...
Auf wiedersehen, Rob
Saturday, January 15, 2011
Weekly F/X Comment
Well if the last week of 2010 was boring, 2011 is showing signs of being determined to make up for it. Last week I lauded the idea of £/€ at 1.2300, and on Thursday morning it was trying hard to hold on to 1.1750. Good job I don't get paid by results... (maybe in a sense I do). So what is going on?
Sterling own goal
Surprise surprise! We're on a roll, let's see what we can do to sabotage it. Two things combined will certainly help, PPI (Producer Price Input) inflation figure up 2% higher than expected, and the CEBR (Centre for Economics and Business Research) has estimated that UK growth will slide back to 1.1% this year compared with a forecast of 2.1%. So more double-dip recession fears for the faint-hearted.
Euro strikers on form
Funny old world. Spain and Portugal paraded with their necks on the chopping block at the bond auctions, and what happens? The fickle investment world lets them off the hook! Also strengthening the Euro was the comments by European Central Bank president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment lemmings to buy the euro.
Rubbish ref!
This really is a load of old tosh! If you have any euros to sell, sell them now. This rate must go up. I loved Jeremy Cook's comment from WorldFirst f/x:
'Sometimes life throws you a curve ball which you miss, take in the teeth and end up with a bloody mouth. Jean-Claude Trichet, head of the ECB's rate setting committee, did that to those of us who think the euro is clinging on to its current value by its fingernails yesterday by announcing that the Euro area faces significant inflation pressures in the near future. This, plus the fact that these pressures would be 'closely monitored', sent the markets into spasm, a frenzy of euro buying with traders betting on an interest rate hike sometime this year. Now, an interest rate rise in the Eurozone is not the dumbest idea we've heard in a while (step forward Qatari World Cup) but it runs it close. Any tightening of monetary policy would be such a catastrophe for those peripheral economies shouldering troubling amounts of debt that the squeals of pain would be heard in every corner of the world. A rate rise won't happen for a long, long time and nor should it. '
Absolutely spot-on. If the markets don't see sense and sell the euro soon, I'll... well I don't know what I'll do. Hats are mostly indigestible after all. Lose money I suppose.
This week?
Reason does not seem to be on my side, but I don't care. I'm still looking for 1.23 before the month's out!
Sterling own goal
Surprise surprise! We're on a roll, let's see what we can do to sabotage it. Two things combined will certainly help, PPI (Producer Price Input) inflation figure up 2% higher than expected, and the CEBR (Centre for Economics and Business Research) has estimated that UK growth will slide back to 1.1% this year compared with a forecast of 2.1%. So more double-dip recession fears for the faint-hearted.
Euro strikers on form
Funny old world. Spain and Portugal paraded with their necks on the chopping block at the bond auctions, and what happens? The fickle investment world lets them off the hook! Also strengthening the Euro was the comments by European Central Bank president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment lemmings to buy the euro.
Rubbish ref!
This really is a load of old tosh! If you have any euros to sell, sell them now. This rate must go up. I loved Jeremy Cook's comment from WorldFirst f/x:
'Sometimes life throws you a curve ball which you miss, take in the teeth and end up with a bloody mouth. Jean-Claude Trichet, head of the ECB's rate setting committee, did that to those of us who think the euro is clinging on to its current value by its fingernails yesterday by announcing that the Euro area faces significant inflation pressures in the near future. This, plus the fact that these pressures would be 'closely monitored', sent the markets into spasm, a frenzy of euro buying with traders betting on an interest rate hike sometime this year. Now, an interest rate rise in the Eurozone is not the dumbest idea we've heard in a while (step forward Qatari World Cup) but it runs it close. Any tightening of monetary policy would be such a catastrophe for those peripheral economies shouldering troubling amounts of debt that the squeals of pain would be heard in every corner of the world. A rate rise won't happen for a long, long time and nor should it. '
Absolutely spot-on. If the markets don't see sense and sell the euro soon, I'll... well I don't know what I'll do. Hats are mostly indigestible after all. Lose money I suppose.
This week?
Reason does not seem to be on my side, but I don't care. I'm still looking for 1.23 before the month's out!
Sunday, January 9, 2011
Weekly F/X comment
Hello and Happy New Year to all.
I had intended to start this year's missives last weekend, but to tell you the truth it was so boring I didn't bother, and as I don't get paid for doing it anyway, I decided to let my New Year hangover rule my agenda for the weekend. Indeed sterling was suffering a fair hangover of its own, languishing around the 1.15 to 1.16 level, mainly due to a complete lack of interest. I think there might be a deeper meaning there, but I won't follow it up. This week however, it's all change, and while all the old protagonists are still on stage, there seems to be a new energy in the market.
Woe betides the euro
It has been a rough start to 2011 for the euro and things don't look like getting much better next week, with a great juicy chunk of PIG bond sales on the way for the markets to devour. The euro fell over 4% against sterling this week, its worst weekly loss since mid-August. Notice I say that the euro fell against sterling, not sterling rose against the euro. Theoretically the same thing, I know, but I like to deal in subtleties.
Borrowing costs for Portugal surged this week as it prepares to sell 20 billion euros in bonds. Spain and Italy need to raise a combined total of 317 billion Euros to manage their imminent debt maturities. This should really focus the market's mind on how it will digest peripheral (a polite word for PIG) government bonds issues in 2011. Higher funding costs should put added pressure on their already weak economies and heighten concerns about their ability to repay debt. Portugal will dip their toes in the water on Wednesday, and Spain and Italy will dive in on Thursday. If you're wondering when Italy became part of this mess, they have indeed been given joint 'I' status with Ireland.
Talk of euro woes just wouldn't be right without mentioning Ireland, and the euro wasn't helped by rumours the Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations. This only serves to reinforce the view that the EU's struggle with rising debt and borrowing costs will continue in 2011.
Herr today, gone tomorrow?
From a political standpoint, the euro’s strength into Christmas week was not unexpected. Politicians and their banker pals will do anything they can to avoid a crisis during Christmas. This does make sense, as so many of the general public are on holiday at the time, and free to focus on the issues (never a good thing for politicians).
Now that the holiday season is over, and the European crisis spreading through the PIGs, the question is how much more will Germany put up with? The big guns have already been deployed, with hundreds of billions of the euro bailout funds already spent. The issue now is whether Germany will be willing to supply more ammunition, or might it give up on the Eurozone and choose to end the bailouts? France wants Germany to join its plan to make the EU council a kind of economic government that would oversee all future bailout efforts. Germany, in contrast, doesn’t want to create any new organisations and wants to promote the existing European Financial Stability Facility into a permanent feature that would oversee the ongoing crisis, removing the ECB from the front line and demanding stricter cost-cutting measures from future recipients of bailouts.
Angela Merkel’s CDU party faces seven state elections in 2011. Losing these could mean no additional term for her in 2013, so she needs to be careful not to further irritate and already outraged German population. 51% of Germans are unhappy with the euro while 77% say joining the EU has brought them no benefit. All eyes are therefore on the German political arena for clues as to what’s coming for the euro. If Germany doesn’t back the euro fully as a currency now, things will get very interesting indeed.
I used to be a fully paid up member of the 'euro is too big to fail' brigade. I'm not going to renew my subscriptions this year.
This week?
The euro is on the slide. I bought some on Thursday at 1.18 and I'm regretting it already. As Kevin Keegan might have once said ''I'd love it we got to 1.25, I'd really love it.' I don't think we'll get all the way there this week, but 1.23 would be nice, wouldn't it?
a bientot, Rob
I had intended to start this year's missives last weekend, but to tell you the truth it was so boring I didn't bother, and as I don't get paid for doing it anyway, I decided to let my New Year hangover rule my agenda for the weekend. Indeed sterling was suffering a fair hangover of its own, languishing around the 1.15 to 1.16 level, mainly due to a complete lack of interest. I think there might be a deeper meaning there, but I won't follow it up. This week however, it's all change, and while all the old protagonists are still on stage, there seems to be a new energy in the market.
Woe betides the euro
It has been a rough start to 2011 for the euro and things don't look like getting much better next week, with a great juicy chunk of PIG bond sales on the way for the markets to devour. The euro fell over 4% against sterling this week, its worst weekly loss since mid-August. Notice I say that the euro fell against sterling, not sterling rose against the euro. Theoretically the same thing, I know, but I like to deal in subtleties.
Borrowing costs for Portugal surged this week as it prepares to sell 20 billion euros in bonds. Spain and Italy need to raise a combined total of 317 billion Euros to manage their imminent debt maturities. This should really focus the market's mind on how it will digest peripheral (a polite word for PIG) government bonds issues in 2011. Higher funding costs should put added pressure on their already weak economies and heighten concerns about their ability to repay debt. Portugal will dip their toes in the water on Wednesday, and Spain and Italy will dive in on Thursday. If you're wondering when Italy became part of this mess, they have indeed been given joint 'I' status with Ireland.
Talk of euro woes just wouldn't be right without mentioning Ireland, and the euro wasn't helped by rumours the Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations. This only serves to reinforce the view that the EU's struggle with rising debt and borrowing costs will continue in 2011.
Herr today, gone tomorrow?
From a political standpoint, the euro’s strength into Christmas week was not unexpected. Politicians and their banker pals will do anything they can to avoid a crisis during Christmas. This does make sense, as so many of the general public are on holiday at the time, and free to focus on the issues (never a good thing for politicians).
Now that the holiday season is over, and the European crisis spreading through the PIGs, the question is how much more will Germany put up with? The big guns have already been deployed, with hundreds of billions of the euro bailout funds already spent. The issue now is whether Germany will be willing to supply more ammunition, or might it give up on the Eurozone and choose to end the bailouts? France wants Germany to join its plan to make the EU council a kind of economic government that would oversee all future bailout efforts. Germany, in contrast, doesn’t want to create any new organisations and wants to promote the existing European Financial Stability Facility into a permanent feature that would oversee the ongoing crisis, removing the ECB from the front line and demanding stricter cost-cutting measures from future recipients of bailouts.
Angela Merkel’s CDU party faces seven state elections in 2011. Losing these could mean no additional term for her in 2013, so she needs to be careful not to further irritate and already outraged German population. 51% of Germans are unhappy with the euro while 77% say joining the EU has brought them no benefit. All eyes are therefore on the German political arena for clues as to what’s coming for the euro. If Germany doesn’t back the euro fully as a currency now, things will get very interesting indeed.
I used to be a fully paid up member of the 'euro is too big to fail' brigade. I'm not going to renew my subscriptions this year.
This week?
The euro is on the slide. I bought some on Thursday at 1.18 and I'm regretting it already. As Kevin Keegan might have once said ''I'd love it we got to 1.25, I'd really love it.' I don't think we'll get all the way there this week, but 1.23 would be nice, wouldn't it?
a bientot, Rob
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