Not that I'm shouting about it, but have you noticed (Richard) that my forecast has been spot on for two consecutive weeks now? That just about doubles my success rate for the year. Sterling had a day off from its woes on Friday. Something to do with the Sovereign taking a day off for a wedding, but earlier in the week there was some action.
Growth, of sorts
The UK GDP figures came out this week for the first quarter of 2011. The 0.5% increase makes up for the poor 4th quarter but to all intents and purposes means that the UK has not grown at all in the past 6 months. The figures showed a rebound in transport since the destruction caused by the winter snow while services and manufacturing and services have remained buoyant. The main problem remains construction, a historically volatile aspect. Mortgage approvals published at the same time as the GDP release show a rise for the 3rd consecutive month.
The pound rose quite sharply after these figures. It seems that there was a lot of market expectation of even worse figures, so positions had to be reversed. This strength didn't last long though.
Same old Euro
The Euro is starting to remind me of a gritty Mexican lightweight boxer around in the eighties. I can't even remember his name, but he always impressed me in the way that he never knew the meaning of defeat. No matter how badly a fight was going, he simply wouldn't give up. I think he retired unbeaten. Either that or he was beaten senseless due to going up too far in the weights.
The Euro has a similar sort of charmed life at the moment. No matter how bad the PIGS problem becomes, or looks like developing into, it hangs in there and keeps on taking the punches and coming back for more. After a while you have to be impressed by that.
Within a day of the sterling show of strength after the figures, the Euro had taken back all the lost ground, and here we are back below 1.13 again. It may have had something to do with Yves Mersch, an ECB board member, speaking publicly about the likelihood of the central bank reigning in their asset purchase scheme in the near future, an action which would see further support for the Euro.
Either way, I can't see much changing in the coming weeks, so I think we will still be in the 1.12s this time next week.
Saturday, April 30, 2011
Saturday, April 23, 2011
F/X weekly comment
Another respectable result on the forecasting front, with sterling spending most of the week languishing in the 1.12s. We started at just over 1.13, and that's where we've ended up, but it didn't take long for sterling weakness to surface:
Minutes
The minutes from the last MPC (no, that doesn't stand for Merv's pathetic crew) showed that none of the six members to vote against an interest rate rise at March’s meeting had changed camps to vote for a rate hike at this month‘s meeting. The devil hidden in the detail of the minutes caused further selling pressure on the sterling, as apparently there were discussions leading to a statement that a rise in interest rates in the near-term would "adversely affect consumer confidence, leading to an exaggerated impact on spending". The market unsurprisingly pushed back their expected date for a rate hike accordingly.
Sales
Figures released on Thursday showed that UK retail sales rose unexpectedly in March, helped by stronger food sales. The ONS (Office for National Statistics) said retail sales volumes including fuel rose 0.2 percent last month, against forecasts of a 0.5 percent fall. Overall though this does little to alter a picture of fragile consumer demand that is deterring the MPC from raising rates. Other figures showed government borrowed slightly lower than forecast in the 2010/11 fiscal year, but this is not expected to change the coalitions view of the necessity to continue with stringent public spending cuts.
Euronews
The Euro's strength this week was helped by a strong Spanish bond auction which is helping Spain's cause in their quest to be divorced from the PIGS. And to be fair, they are the only one of the four not to have received a bailout so far. Spreads in Greece, Ireland and Portugal continued to widen, probably because of lingering worries of a possible early Greek debt restructuring. It does seem though as if the Euro is starting to shrug off these concerns, and if there are no more scares over the weekend, we could see further strength from the Euro against the pound.
For that reason, I'm afraid I see more despondency for sterling over the coming week, and I'll be surprised if we hang on to the 1.13 level.
Minutes
The minutes from the last MPC (no, that doesn't stand for Merv's pathetic crew) showed that none of the six members to vote against an interest rate rise at March’s meeting had changed camps to vote for a rate hike at this month‘s meeting. The devil hidden in the detail of the minutes caused further selling pressure on the sterling, as apparently there were discussions leading to a statement that a rise in interest rates in the near-term would "adversely affect consumer confidence, leading to an exaggerated impact on spending". The market unsurprisingly pushed back their expected date for a rate hike accordingly.
Sales
Figures released on Thursday showed that UK retail sales rose unexpectedly in March, helped by stronger food sales. The ONS (Office for National Statistics) said retail sales volumes including fuel rose 0.2 percent last month, against forecasts of a 0.5 percent fall. Overall though this does little to alter a picture of fragile consumer demand that is deterring the MPC from raising rates. Other figures showed government borrowed slightly lower than forecast in the 2010/11 fiscal year, but this is not expected to change the coalitions view of the necessity to continue with stringent public spending cuts.
Euronews
The Euro's strength this week was helped by a strong Spanish bond auction which is helping Spain's cause in their quest to be divorced from the PIGS. And to be fair, they are the only one of the four not to have received a bailout so far. Spreads in Greece, Ireland and Portugal continued to widen, probably because of lingering worries of a possible early Greek debt restructuring. It does seem though as if the Euro is starting to shrug off these concerns, and if there are no more scares over the weekend, we could see further strength from the Euro against the pound.
For that reason, I'm afraid I see more despondency for sterling over the coming week, and I'll be surprised if we hang on to the 1.13 level.
Saturday, April 16, 2011
Weekly F/X comment
Things are improving. No with sterling of course, but with my forecasting record. We did indeed dip into the 1.12s during the week, but in the end managed to claw back to just over 1.13 after a bit of a wobble from the Euro.
What's a Grecian Urn?
Not enough to pay his debts, obviously. (sorry Eric) Greek borrowing costs peaked at new record levels yesterday. Greek and German finance ministers have discussed the possibility that Greece may need more time to attract investors and debt restructuring is on the cards. There is a theory that Greece’s debt levels are unsustainable, if they are then ‘further measures’ could be taken.
Paddypowerless
At the moment the euro is still strong from the possibility of another interest rate hike, but has weakened since the sterling lows during the week. This weakness has come partly from noise from Irish Government about ‘structured default’, and partly to the contents of the ECB report which showed that an interest rate hike was warranted, but warned of the higher risk of price stability. On top of that Moody’s downgraded Ireland’s sovereign rating to just above junk.
The term 'structured default', in case you couldn't guess, means welching on your debt. Doing a 'runner' in effect. The Irish may have no choice, as may the Greeks. The only reason we're not talking about Portugal doing it is that they haven't worked out what their debt is yet.
Sterling stuff
The UK Consumer Price Index figures released this week showed a fall in inflation for the first time in 8 months. A fall in food and soft drink prices was the main cause. Lower inflation means that initial expectations of a rate hike in the UK have now been pushed back even further, and November is now being touted as a likely date. This news weakened sterling and at one point it reached one year low against the Euro.
A survey also showed the biggest drop in retail sales in nearly 6 years, highlighting the problems facing the UK as the government's tough austerity measures hit home.
So yet again we have the situation where there is no discernible currency strength to talk about, only relative strength borne of real weaknesses in both camps. Somehow though I think that the Euro's long term problems are greater than sterling's. that allows me to hold on to my belief that we will eventually see rates settle in the mid 20s, but maybe not for some considerable time yet. Short term movement is, as I know only too well, very difficult to predict, but I can see sterling weakening more next week, and I think we will be back in the 1.12 range.
Saturday, April 9, 2011
F/X Comment
My forecast last week was much more accurate, and we've ended this week just 25 points away from the 1.12 range, which is not good news for anyone looking to bring sterling over here and change it into Euros. I even got the basic reasoning right, and it was all down to interest rate movement.
Euro rates up
The European Central Bank raised its lending rate from 1.00% to 1.25% yesterday despite continuing Eurozone sovereign debt concerns. Portugal’s debt crisis surfaced again just before the rate hike, when Prime Minister Jose Socrates announced that he was forced to seek an ECB bail-out. European Finance Ministers are meeting as I write to thrash out the details of the deal, with some commentators predicting that the UK may be forced to stump up close to £4Bn in loan guarantees on Portuguese debt.
ECB President Jean-Claude Trichet hit the nail on the head when he stated that 'the hike is unwelcome for peripheral countries'. There is a real fear now that the interest rate hike combined with stringent austerity measures may lead to mass unemployment and a contraction in economic growth in the PIGs. It appears however that the ECB attaches more importance to rising prices in Germany and France than to concerns over growth fears for minor states with yesterday’s monetary policy decision. This can only cause long term damage to the viability of the Euro project.
There is a chance though that this rate rise will not now be the first of many, and recent events in Portugal, Ireland and Greece and fears over future funding problems in Italy and Spain may slow the return of Euro rates to 'normal' levels.
Sterling rates on hold
While the ECB was raising rates on Thursday, Merve and the boys at the BoE predictably sat on their hands and did nothing. This is the overwhelming reason why rates are where they are now, and it could get worse before it gets better. The PPI figure this morning came in at 3.7% against 2.2% expected, adding to expectations for a higher consumer price inflation number next week, which will add further pressure on the MPC to raise rates.
As long as the UK delays interest rate rises, the exchange rate will suffer, and we could even dip below the 1.10 level. However, with UK inflation heading towards 5% and the price of a barrel of Crude Oil reaching its highest ever level this week, it is possible that the Bank might wake up and adopt a more lively stance in coming months. This, combined with a need for the ECB to keep Eurozone rates lower than they'd like to in order to help the PIGs, could spark the long-awaited recovery for the pound.
So?
None of this is going to happen in a hurry, so I'm still looking at a dip into the 1.12's by next weekend.
Euro rates up
The European Central Bank raised its lending rate from 1.00% to 1.25% yesterday despite continuing Eurozone sovereign debt concerns. Portugal’s debt crisis surfaced again just before the rate hike, when Prime Minister Jose Socrates announced that he was forced to seek an ECB bail-out. European Finance Ministers are meeting as I write to thrash out the details of the deal, with some commentators predicting that the UK may be forced to stump up close to £4Bn in loan guarantees on Portuguese debt.
ECB President Jean-Claude Trichet hit the nail on the head when he stated that 'the hike is unwelcome for peripheral countries'. There is a real fear now that the interest rate hike combined with stringent austerity measures may lead to mass unemployment and a contraction in economic growth in the PIGs. It appears however that the ECB attaches more importance to rising prices in Germany and France than to concerns over growth fears for minor states with yesterday’s monetary policy decision. This can only cause long term damage to the viability of the Euro project.
There is a chance though that this rate rise will not now be the first of many, and recent events in Portugal, Ireland and Greece and fears over future funding problems in Italy and Spain may slow the return of Euro rates to 'normal' levels.
Sterling rates on hold
While the ECB was raising rates on Thursday, Merve and the boys at the BoE predictably sat on their hands and did nothing. This is the overwhelming reason why rates are where they are now, and it could get worse before it gets better. The PPI figure this morning came in at 3.7% against 2.2% expected, adding to expectations for a higher consumer price inflation number next week, which will add further pressure on the MPC to raise rates.
As long as the UK delays interest rate rises, the exchange rate will suffer, and we could even dip below the 1.10 level. However, with UK inflation heading towards 5% and the price of a barrel of Crude Oil reaching its highest ever level this week, it is possible that the Bank might wake up and adopt a more lively stance in coming months. This, combined with a need for the ECB to keep Eurozone rates lower than they'd like to in order to help the PIGs, could spark the long-awaited recovery for the pound.
So?
None of this is going to happen in a hurry, so I'm still looking at a dip into the 1.12's by next weekend.
Saturday, April 2, 2011
F/X weekly comment
Any chance I could delete the last line of my article last week? You know, the one where it says sterling at 1.1500 for me next week. At least it keeps my success record intact. At the start of the year I very nearly started a system whereby I could measure my forecasting acumen by doing a series of trades with one of the online dealing companies. Basically if I got it right I made a profit, and if not, a loss. I'm very glad I didn't start that. I think I'd be in a similar position to Portugal by now - in need of a bailout.
Euro fiction
It was the eurozone which made all the headlines this week, starting with a March inflation figure jumping to a higher than expected 2.6%. This boosted the ECB’s case for increasing rates next week as it has no doubted fuelled concern that prices are being driven by higher energy and commodity prices. The chances are that the ECB will raise interest rates by a quarter of a percent next Thursday. Germany’s unemployment level fell twice as sharply as expected in March which confirmed the steadily recovery of the jobs market.
The results of the Irish banking stress tests were fairly awful this week. The Irish Central Bank said that the tests show the four main banks will need to raise 24 billion Euros in extra capital. This would enable the Irish banking system to withstand any possible losses if the economy worsens. Meanwhile, Portugal is not having much fun, as revised figures on Thursday showed the country’s deficit was still rising. Prime Minister Jose Socrates resigned last week after parliament rejected a new round of budget cutbacks leaving the country in limbo. Furthermore, the interim government on Thursday revised figures showing the deficit was more than a percentage point above target at 8.6 percent of gross domestic product. The Spanish retail banking sector could be the next area of concern for the ECB, with a number of Cajas already facing severe funding problems.
You would think that this would push sterling back up against the euro but in fact the opposite has happened, even positive house price data couldn’t save the dear old pound at the moment thanks to the EU interest rate suspense.
Sterling fact
Growth data out yesterday for the last quarter of 2010 was slightly better than expected at –0.5% but the market will now be more concerned with GDP data for the first quarter of 2011 due at the end of April. With the minutes of the last meeting of Merve's clan showing no extra appetite for UK interest rate rises, the likelihood is that we will have to wait until July or August for a rise.
U.K. house prices rose unexpectedly for a second consecutive month in March, but weak mortgage-lending figures and an expected rise in mortgage rates suggest that a sustained recovery in prices is doubtful because of the many pressures buffeting the economy, including continued rises in unemployment and inflation, and very poor readings of household confidence.
So?
Skip last week's forecast, I'm going back to the previous week. Watch out for the 1.1200s.
Euro fiction
It was the eurozone which made all the headlines this week, starting with a March inflation figure jumping to a higher than expected 2.6%. This boosted the ECB’s case for increasing rates next week as it has no doubted fuelled concern that prices are being driven by higher energy and commodity prices. The chances are that the ECB will raise interest rates by a quarter of a percent next Thursday. Germany’s unemployment level fell twice as sharply as expected in March which confirmed the steadily recovery of the jobs market.
The results of the Irish banking stress tests were fairly awful this week. The Irish Central Bank said that the tests show the four main banks will need to raise 24 billion Euros in extra capital. This would enable the Irish banking system to withstand any possible losses if the economy worsens. Meanwhile, Portugal is not having much fun, as revised figures on Thursday showed the country’s deficit was still rising. Prime Minister Jose Socrates resigned last week after parliament rejected a new round of budget cutbacks leaving the country in limbo. Furthermore, the interim government on Thursday revised figures showing the deficit was more than a percentage point above target at 8.6 percent of gross domestic product. The Spanish retail banking sector could be the next area of concern for the ECB, with a number of Cajas already facing severe funding problems.
You would think that this would push sterling back up against the euro but in fact the opposite has happened, even positive house price data couldn’t save the dear old pound at the moment thanks to the EU interest rate suspense.
Sterling fact
Growth data out yesterday for the last quarter of 2010 was slightly better than expected at –0.5% but the market will now be more concerned with GDP data for the first quarter of 2011 due at the end of April. With the minutes of the last meeting of Merve's clan showing no extra appetite for UK interest rate rises, the likelihood is that we will have to wait until July or August for a rise.
U.K. house prices rose unexpectedly for a second consecutive month in March, but weak mortgage-lending figures and an expected rise in mortgage rates suggest that a sustained recovery in prices is doubtful because of the many pressures buffeting the economy, including continued rises in unemployment and inflation, and very poor readings of household confidence.
So?
Skip last week's forecast, I'm going back to the previous week. Watch out for the 1.1200s.
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