It was a very familiar feeling, watching sterling struggle all week. A bit like watching West Brom trying to stay in the Premier League. One step forwards, two steps back. Every game a six-pointer, and you don't win any of them. It's been a very poor week for the old currency, and a better one for the new. So here we are at just under 1.1700 when 1.2000 looked such a realistic bet at the end of last week. So what went wrong this time?
The Gaddafi effect
So why should the tent-dwelling green-book-waving dictator have any more effect than all the other despotic ragtops? (no, it's not racist, it's descriptive). Oil, that's what. It seems that he would rather set a match to the umpteen billion barrels of oil he's perched on than stand aside and let democracy ruin his party. After all, it's not really fair, is it? He's right when he says that Queen Elizabeth has ruled for longer than he, and no one is trying to kick her out of her own country. I do rather think he may be missing the point though.
Oil markets scare easily. The thought of what $200 a barrel oil would do to weak economies, including the UK, was enough to make sterling investors think three or four times, never mind twice.
Mersh un-mellow
Yves Mersch is an ECB henchman, or can be viewed as such in sterling terms. He had the audacity this week to imply that the ECB may be about to harden its views on inflation. In other words the Eurozone may consider raising interest rates earlier than everyone thought they would. The markets took the hint and bought the Euro on the thought of higher rates than sterling.
And when it's not your day
You just know that things aren't going your way when the bank of England come out saying virtually the same thing as the ECB, and the market reacts in the opposite way. The MPC minutes showed that there are now three members of the committee looking for higher UK interest rates to counter inflation. Much the same stance as the ECB you might think, so it should nullify the effect. No, of course not. Sell more sterling, buy Euros.
Remember GDP?
You know, that awful figure for the 4th quarter of 2010? Don't worry, they said, the figure of down 0.5% was only provisional, and it will be revised in February. It has just been revised to down 0.6%
So where does that leave us for the coming week? I have to say I'm running out of logical predictions, or certainly ones that work out to be anywhere near correct. I'm therefore going to abandon perceived logic, and go for a stronger pound by next weekend, if only on the basis that sterling doesn't really deserve to have two bad weeks like this in a row. My forecast is 1.1875 for next Friday evening. fingers crossed!
Friday, February 25, 2011
Saturday, February 12, 2011
Weekly F/X comment
Pretty much a stalemate at the end of this week, where we ended up at 1.1830. That feels like quite a result for me compared to recent drubbings in the forecasting stakes. It also gives me a chance to leave my chips on the table from last week, and continue to look for renewed sterling strength in the coming weeks. A one of my friends and readers pointed out during the week, if I really wanted sterling to go up, I'd forecast a collapse. The risk is of course that I'd be right for once!
Still back on track?
I still feel better about sterling this week. The fall down into the 1.16's was a serious reversal, but I'm still looking for those reasons to be cheerful. There are more and more observers in the market that are starting to look for sterling, and indeed European, interest rate rises. The betting is that the BOE will move first. Traditionally the ECB, having picked up the habit from the Bundesbank, hate to be trendsetters. The fact that the rates did not go up this week hurt sterling initially, but that was just because speculators had factored in a 20% chance of a UK rate hike, and when it didn't happen, they sold their short term sterling holdings, making the rate dip.
Egyptian Pound
Can it be a coincidence that the Egyptian currency is the pound? Of course the relevance is zero, but it is interesting that the crisis in Egypt has been helping the Euro crisis currencies go about their business relatively unnoticed for the last couple of weeks, and the PIGS have been able to quietly sort themselves out away from the market's full glare. That was until Thursday, when a Portuguese bond auction needed intervention from the ECB to prevent yields hitting double digits. This upset the Euro investor market and helped the pound regain its losses after the interest rate decision.
On Friday sterling received more support when the PPI input data, which measures the change in the price of goods and raw materials purchased by manufacturers, indicated further inflation worries by coming out much stronger than expected. Next week could be choppy on the figures front with Tuesday’s CPI and then the biggie, the BOE inflation report on Wednesday.
Why a rate rise?
Raising rates takes demand out of the economy and slows down inflation. Higher rates also strengthen the pound due to the higher yield for investors. Unfortunately there is also a downside. It also increases the cost of borrowing and could bring with it a dip back into recession, especially when taken in tandem with the austerity package. My money is on a UK rate rise in May, with speculation before then adding to sterling's attraction.
So, as I said at the start, I'm keeping my chips on the table. Early 1.2000s for me by next week.
A bientot, Rob
Still back on track?
I still feel better about sterling this week. The fall down into the 1.16's was a serious reversal, but I'm still looking for those reasons to be cheerful. There are more and more observers in the market that are starting to look for sterling, and indeed European, interest rate rises. The betting is that the BOE will move first. Traditionally the ECB, having picked up the habit from the Bundesbank, hate to be trendsetters. The fact that the rates did not go up this week hurt sterling initially, but that was just because speculators had factored in a 20% chance of a UK rate hike, and when it didn't happen, they sold their short term sterling holdings, making the rate dip.
Egyptian Pound
Can it be a coincidence that the Egyptian currency is the pound? Of course the relevance is zero, but it is interesting that the crisis in Egypt has been helping the Euro crisis currencies go about their business relatively unnoticed for the last couple of weeks, and the PIGS have been able to quietly sort themselves out away from the market's full glare. That was until Thursday, when a Portuguese bond auction needed intervention from the ECB to prevent yields hitting double digits. This upset the Euro investor market and helped the pound regain its losses after the interest rate decision.
On Friday sterling received more support when the PPI input data, which measures the change in the price of goods and raw materials purchased by manufacturers, indicated further inflation worries by coming out much stronger than expected. Next week could be choppy on the figures front with Tuesday’s CPI and then the biggie, the BOE inflation report on Wednesday.
Why a rate rise?
Raising rates takes demand out of the economy and slows down inflation. Higher rates also strengthen the pound due to the higher yield for investors. Unfortunately there is also a downside. It also increases the cost of borrowing and could bring with it a dip back into recession, especially when taken in tandem with the austerity package. My money is on a UK rate rise in May, with speculation before then adding to sterling's attraction.
So, as I said at the start, I'm keeping my chips on the table. Early 1.2000s for me by next week.
A bientot, Rob
Saturday, February 5, 2011
Weekly F/X comment
Back in France at last! It's lovely to visit family and friends; check out your old local; do the tour of ethnic restaurants, and 'shop for England'. It is also very hard work, very tiring, and makes you put on weight. Throw in a corporate trip to Berlin at the end and things get even worse. Still, you can't have everything, can you?
Back on track?
I also feel better about sterling this week. The fall down into the 1.16's came as a nasty shock to me and I suspect a good few others, but last week I started to look for some 'reasons to be cheerful'. Let's face it, if Ian Dury could do it, so should we all.
We are at 1.1860 at the moment. I was looking for a consolidation at 1.1725, but I'm more than happy to see us here, and I'm now looking for another go at the 1.2000s.
Sterling up
The markets worst fears about the preliminary GDP figures seem to be dissipating. The pound was boosted by a return to growth in the construction sector in January.
Currency strategists are now saying that the better than expected construction figures add fuel to the interest rate hike lobby. The construction data follows similar positive news from the manufacturing sector, which showed UK manufacturing in January expanding at its fastest rate since 1992.
House prices also rose more than expected, and on Friday the services sector shrugged off December's snow problems and posted an impressive PMI figure. Still too early to tell, but it is beginning to look as though fears of a double dip recession were overdone, and we can expect a good revision to those awful fourth quarter figures.
Euro down
markets are starting to focus on Europe's problems again. The ECB not surprisingly left interest rates unchanged again this week. Then in his after - decision press conference M. Trichet tried his usual tactic of warning of the need for vigilance and future interest rate rises. The aim here is to get the benefit of an interest rate hike without actually having one. This time however the market called his bluff, and started selling the euro. A rate hike while the PIGS are still in such dire straits would be suicidal. Subsequently the euro lost its recent strength against the dollar and sterling, sliding by over a cent against both. The single currency was not helped by a poor Spanish bond auction or weak German retail sales either.
OK, time for me to put my money where my mouth is. Thank goodness I never have to do that! Where for sterling next weekend? 1.2000 please, and quick about it...
Back on track?
I also feel better about sterling this week. The fall down into the 1.16's came as a nasty shock to me and I suspect a good few others, but last week I started to look for some 'reasons to be cheerful'. Let's face it, if Ian Dury could do it, so should we all.
We are at 1.1860 at the moment. I was looking for a consolidation at 1.1725, but I'm more than happy to see us here, and I'm now looking for another go at the 1.2000s.
Sterling up
The markets worst fears about the preliminary GDP figures seem to be dissipating. The pound was boosted by a return to growth in the construction sector in January.
Currency strategists are now saying that the better than expected construction figures add fuel to the interest rate hike lobby. The construction data follows similar positive news from the manufacturing sector, which showed UK manufacturing in January expanding at its fastest rate since 1992.
House prices also rose more than expected, and on Friday the services sector shrugged off December's snow problems and posted an impressive PMI figure. Still too early to tell, but it is beginning to look as though fears of a double dip recession were overdone, and we can expect a good revision to those awful fourth quarter figures.
Euro down
markets are starting to focus on Europe's problems again. The ECB not surprisingly left interest rates unchanged again this week. Then in his after - decision press conference M. Trichet tried his usual tactic of warning of the need for vigilance and future interest rate rises. The aim here is to get the benefit of an interest rate hike without actually having one. This time however the market called his bluff, and started selling the euro. A rate hike while the PIGS are still in such dire straits would be suicidal. Subsequently the euro lost its recent strength against the dollar and sterling, sliding by over a cent against both. The single currency was not helped by a poor Spanish bond auction or weak German retail sales either.
OK, time for me to put my money where my mouth is. Thank goodness I never have to do that! Where for sterling next weekend? 1.2000 please, and quick about it...
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