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.
Thursday, September 29, 2011
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!
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