France Financial

F/X weekly comment

2012-01-07T14:52:00.003+01:00

Another year, another pound, and maybe even a few more centimes thrown in for good measure. What a way to start 2012, basking in the relative wealth of 1.2130 and looking forward to even better things to come. Can it be true?

Not so fast...

I hate to be a killjoy about this, but I think we have to keep a grasp on reality here. The pound isn't worth 1.2130 Euros because it represents a vibrant economy bursting with growth potential, low debt and healthy surpluses. Far from it; the pound is at this level because the Eurozone economies are in an even worse shape than ours, and that's saying something. Takes the gloss off a bit, doesn't it?

But on the other hand...

A pound will still be a pound when we get to the end of 2012; a Euro may not be quite the full shilling when we get to that stage. I've listened to lots of pontificating over the last few weeks from political commentators, economists, traders and the like, and it strikes me that I've never heard so many people (not all though), who are convinced that the Euro cannot survive in its present form. Personally, I have no doubt that the Euro will exist in a year's time, but I do think things will have changed. I can't for the life of me see how Greece can possibly continue as a Euro country. I think that even after two bailouts (should that be bailsout?) it will still struggle to avoid default, maybe as early as Aril this year. Lending billions to an ailing economy is brave indeed, expecting to get your money back is downright foolish.

One out...

Not all out maybe, but I have a few candidates. Here is my list of cast iron favourites to still be members of the Euro club at the end of the year: Germany, France, Belgium, Luxembourg, Holland, Austria, Finland and Monaco. That, I agree, leaves quite a few casualties, but I don't expect the rest to be cast to the wolves. As I see it the Eurozone needs a relegation and promotion system. A premier league and first division if you like, with maybe a Doc Martins southern league tagged on for good measure.

I think there is a strong case for arguing that the Euro will reach breaking point this year, and something will have to be done. Anyone remember the ERM? And the Snake? Any country in such a mechanism isn't completely tied to one exchange rate, it has a leeway in which the rate can move. Such flexibility is currently craved by many of the peripheral countries. This would be Division 1. When any of the countries in this division manages to get its finances in order, it can be promoted back to the Premier division, the Full Monti (sorry, Euro).

The Southern league's founder member will of course be Greece, possibly to be joined by the likes of Cyprus and Malta, and any of the PIGS that flounder in Div 1. They, I'm afraid, are the basket cases, consigned to near economic collapse and forced to queue up in the Brussels soup kitchens for handouts. Just like bailouts, but you don't have to pay them back.

Short term?

Make hay while the sun shines. I'm converting at least half of my meagre sterling pittance into Euros. We might see 1.2200 this week.

F/X Weekly comment

2011-12-17T14:17:00.000+01:00

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!

F/X weekly comment

2011-12-10T11:21:00.000+01:00

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)

F/X weekly comment

2011-12-03T00:04:00.002+01:00

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.

F/X Weekly Comment

2011-11-26T11:51:00.004+01:00

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.

F/X Weekly comment

2011-11-19T09:43:00.000+01:00

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.

F/X weekly comment

2011-11-11T18:16:00.000+01:00

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.

F/X weekly comment

2011-11-05T11:04:00.001+01:00

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.

F/X Weekly Comment

2011-10-29T13:52:00.000+02:00

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.

F/X weekly comment

2011-10-22T01:35:00.000+02:00

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.

F/X weekly comment

2011-10-15T15:54:00.002+02:00

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

F/X weekly comment

2011-10-07T17:49:00.002+02:00

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...

F/X weekly comment

2011-09-29T20:59:00.000+02:00

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.

F/X weekly comment

2011-09-24T13:09:00.002+02:00

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...

F/X weekly comment

2011-09-18T13:05:00.002+02:00

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...

F/X weekly comment

2011-09-09T17:39:00.002+02:00

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....

F/X Weekly comment

2011-09-03T16:10:00.001+02:00

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!

F/X Weekly Comment

2011-08-26T18:59:00.000+02:00

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.

F/X Weekly comment

2011-08-20T10:31:00.000+02:00

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.

F/X Weekly Comment

2011-08-13T10:29:00.000+02:00

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.

F/X Weekly comment

2011-08-05T17:59:00.000+02:00

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.

F/X Weekly comment

2011-07-30T15:09:00.002+02:00

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.

F/X Weekly Comment

2011-07-23T16:28:00.000+02:00

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...

F/X Weekly comment

2011-07-15T20:23:00.002+02:00

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!

F/X Weekly comment

2011-07-09T10:24:00.000+02:00

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.

F/X Weekly Comment

2011-07-01T18:45:00.000+02:00

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

F/X Weekly Comment

2011-06-24T17:53:00.000+02:00

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.

F/X Weekly Comment

2011-06-17T18:36:00.000+02:00

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!

F/X weekly comment

2011-06-10T18:06:00.000+02:00

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.

F/X weekly comment

2011-06-03T19:31:00.000+02:00

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.

F/X weekly comment

2011-05-27T18:37:00.000+02:00

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...

Weekly F/X Comment

2011-05-14T11:42:00.000+02:00

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.

F/X weekly comment

2011-05-07T10:27:00.000+02:00

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.

F/X weekly comment

2011-04-30T11:02:00.000+02:00

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.

F/X weekly comment

2011-04-23T12:07:00.000+02:00

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.

Weekly F/X comment

2011-04-16T15:08:00.000+02:00

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.

F/X Comment

2011-04-09T08:59:00.000+02:00

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.

F/X weekly comment

2011-04-02T10:18:00.000+02:00

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.

F/X weekly comment

2011-03-25T18:50:00.003+01:00

Interesting. Very interesting. But stupid. I'm sure I can picture that sketch from Rowan and Martin's laugh-In in the 70s, or was it the late 60s? It is such an apt comment for this week's machinations in the foreign exchange market.

Euro highs
The euro has had a very good week, at one point reaching a 4 month high (that's a low exchange rate to you and me). This is all despite the Portuguese government falling apart over an austerity vote; a general election likely and ratings downgrades by Fitch and S&P. Add to this Moody's decision to cut the ratings of 30 Spanish banks and the news that Irish GDP fell by 1.3% in Q4 you have to wonder what the hell is going on in Euroland. What are they on? And can I have a couple of litres of it please? The simple answer is continued bullishness over possible interest rate increases in the Eurozone. Trichet and his crew seem determined to increase interest rates even while the PIGS are teetering on the brink.

Sterling lows
Sterling was also the architect to its downfall with a poor retail sales figure for February. It looks like high st UK brought forward high ticket spending beat the 2.5 percentage point increase in VAT while still being fearful of unemployment and the government’s austerity measures. The backlash is that there was no money le4ft to spend in February. Even Sainsbury’s posted poor results and if they are feeling the pinch then the smaller family stores and independent retailers are bound to be in a worse position.
If inflation stays high, as predicted in the budget, we are going to see these companies increase prices, further pressurising sales in rest of the year. This sends a powerful message to Mervyn's gang that while inflation is high, the state of growth in consumer spending, business lending, and the housing market is too perilous for an interest rate rise anytime soon. This is not good news for sterling, as we have seen this week.

A brighter outlook?
What? Am I mad? Quite possibly, but my point is that the only thing that moves any market is supply and demand. Yes, that can be swayed, or even panicked by sentiment, but logic rarely plays much of a part. The stronger a logical case you can make for sterling going down the pan, the less likely it is to do so.
Sterling is just too low. I'm not saying it won't go a bit lower, but it must come back (don't quote me).
Back to the 1,1500s for me, by the end of next week.

F/X weekly comment

2011-03-19T12:13:00.003+01:00

Even mildly observant readers of this column may have noticed a pattern starting to emerge recently. I forecast that sterling will go up; it goes down. I forecast it will remain level; it goes down. I forecast it will go down; it goes down. Last week I forecast that sterling would tread water in the 1.1600 range, and where is it now? 1.1450, that's where.
It's not even as though much happened this week. Chernobyl MK11 is unfolding before our very eyes; another oil war, this time in Libya (why can't we pick a fight somewhere where our equipment won't clog up with sand?). And of course a currency crisis in Japan, where the very last thing they need at the moment is a strong currency.

Confidence

Unsurprisingly, the British public seems somewhat lacking in this useful commodity recently. The Nationwide Building Society's consumer confidence index fell to 38 last month, its lowest since the survey began in May 2004, following on from another sharp drop to 48 in January. The record fall was driven by a steep decline in the index that measures consumers' expectations for the British economy in six months. That fell to 50 in February, from 64 in January. The spending component, the section which gauges people's appetite for buying household goods and other major purchases, tumbled even further, down 18 points to 52 from 70.
The gloomy survey highlights the dilemma facing Mervin King and his team as they debate when to raise rates from a record low of 0.5 pc to try to curb inflation now running at 4.2 pc, more than double its target. They have to balance the need for an interest rate hike to fight inflation with the need to protect and encourage growth. Add to this the uncertainty about the global economic outlook in the wake of last week's earthquake and tsunami in Japan, and the result is that expectations of a UK interest rate rise in May are looking less and less likely to come to fruition. A more likely date is now deemed to be August.

Timing

The problem with a UK interest rate rise in August is that it is likely to be preceded by a Euro rate hike , possibly in May. If this happens sterling will fall further against the Euro, as yet another reason to buy the pound disappears.

Onwards and downwards

Moving forwards I think it likely that sterling will remain weak due to the uncertainty in the world at present. Problems in Libya will now escalate, and this is likely to have an impact on oil prices and also investors will continue to move away from riskier currencies such as the pound.
Highlighting concerns about the economy, the OECD cut its 2011 growth forecast for the UK this week, saying that we face significant risks from falling house prices, weak domestic consumption and uncertain global demand. Also yesterday figures showed that UK unemployment is at its highest since 1994. The combined bad economic news for the UK weakened the pound and pushed exchange rates lower against all major currencies.

So where to this week?
Let's go with the flow. Flow only goes one way. Down. I can't see any good news around at the moment. I think we will test 1.1400 early in the week, and if it doesn't hold, we could be looking at the 1.12s before very long.

F/X weekly comment

2011-03-12T09:06:00.000+01:00

Timing is a vital ingredient in F/X forecasting. Had this week ended on Thursday, my forecast would have been spot-on at 1.17. As it is, we have drifted back and the pound is now back under the 1.1600 level. It has been an interesting few days however, and could get more interesting in the coming weeks. Here is what happened this week:

Interest rates
The Bank of England left interest rates at 0.5% on Thursday. We have now been at that level for a full two years. No rational onlooker would have expected anything else, but it appears as though some market players were holding out for an early rate hike, and the pound was sold when this didn't happen. I don't actually expect anything to happen next month either, and it's touch and go whether they do anything in May. There is a school of thought that favours August on the basis that government cuts will hurt the UK economy more than the coalition expects, and therefore growth could slow in May. Recent signals that the ECB is nearly ready to hike Euro rates will not help sterling.

Inflation
Friday was a busy day for figures, with inflation reports for the major European economies released showing that prices accelerated in February as debt woes continued to occupy traders' minds. German CPI data showed that prices surged at the fastest pace in more than two years last month, driven by the rise in commodity prices. Inflation in Germany rose to 2.2 percent, in line with market expectations. The German economy has of course been driving the Eurozone recovery. New jobs are being created, bringing unemployment to the lowest level in almost 20 years, but inflation is on the way up as oil prices surge. Heating oil rose 32% year on year, while fuel prices have risen 12% since January.
UK Producer Prices provided no great cheer here either. Input prices increased by 1.1 percent last month, with an annual price gain of 14.6%, the fastest rate in thirty months. This puts more pressure on the BoE to contain inflation, and that means rate rises. Consumer Prices rose in February by an annualised 4%, double the desired rate set by BoE at 2% and the upper limit set 3%.

Debt
Spanish. Lots of it. So much that Spain’s credit rating was cut yesterday to Aa2 by Moody’s, which said lenders may need as much as 50 billion Euros to meet new capital adequacy rules. The Bank of Spain said its estimate of 15.2 billion Euros may end up lower as some savings banks opt for stock listings that will reduce the amount of capital they need under Spain’s new rules imposed last month. Some chance!
Spain is desperately trying to stem contagion as investors fear that Portugal may need a bailout and Greece and Ireland will lobby to renegotiate rescue deals. Prime Minister Zapatero’s government is seeking to show that his banks can survive a fourth consecutive year of economic slump and a jobless rate of 20 percent, as bond yields on the PIGS surge.

So what now?
We woke on Friday to see images of the tsunami bursting over Japan's shores. This is a real biggie, and could have a great effect on both equity and currency markets. Things could get a bit 'choppy' in more ways than one. It might even have the effect of diverting attention from more mundane matters, in which case I suspect that we will not see much change in the exchange rate this week. Sterling in the 1.16s for me.

A bientot, Rob

Weekly F/X comment

2011-03-05T10:46:00.000+01:00

Well, we obviously didn't cross our fingers for long enough, did we? Whichever way you look at it, 1.1630 doesn't look much like 1.1875 so chalk this week down as another 'miss'. So let's roll out the things that we didn't anticipate this week...

ECB and Interest Rates
ECB President Jean-Claude Trichet said euro zone rates could rise sooner than expected in a press conference on Thursday. OK, he didn't actually say that, but an upgrade to European growth prospects twinned with a call for 'strong vigilance' towards price pressures said it for him. Trichet's speech is always closely monitored for coded references to interest rate changes, and the market seized on the 'strong vigilance' line as it has in the past been used as a precursor to a rate rise within two months. Just to make things blatantly obvious in this secretive world, the final statement omitted the line referring to current rates being appropriate.
UK Economy
UK house prices fell 0.9% in February, and worries about the economic recovery are likely to keep prices under pressure this year. This drop was twice as big as forecast by analysts, and most economists reckon house prices will dip this year by between 2% and 3%.
Just to add to Sterling's woes, it was hurt by a poor services PMI figure on Friday. While there have been increases for the construction and manufacturing sector in the past few months the services sector, which makes up 70% of the UK economy, fell back in February. This is a reflection of the lack of lack of consumer confidence that is causing the people in the street to not spend money. This is a blow to the government and will dampen hopes of a near term interest rate increase from the Bank of England.
A question of balance
Things are starting to get interesting (no pun intended) on the interest rate front. Sterling has been supported for a couple of months now by expectations of a rate hike, and now it looks as though the Euro may beat us to it. That in my view is unlikely though. I can see both central banks moving at the same time in May, but that won't give sterling any impetus against the Euro.
Where sterling may gain is after the rate hike. It will be interesting to see how the market reacts to a Euro rate hike when, quite frankly, that is the last thing the PIGS need. The Euro could then come under renewed pressure, and we could then see sterling mount another charge on the 1.2000 level.
Until that happens (or doesn't happen) it will be difficult for sterling to make much headway, so I don't have any high hopes for much change by next week. 1.1700 is my forecast.

Weekly F/X Comment

2011-02-25T18:50:00.000+01:00

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!

Weekly F/X comment

2011-02-12T10:03:00.000+01:00

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

Weekly F/X comment

2011-02-05T11:31:00.001+01:00

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...

2011-01-30T18:59:00.000+01:00

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.

2011-01-23T15:51:00.000+01:00

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

Weekly F/X Comment

2011-01-15T00:49:00.000+01:00

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!

Weekly F/X comment

2011-01-09T13:34:00.000+01:00

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

Weekly F/X comment

2010-12-18T11:25:00.000+01:00

Oh dear, wrong again! Mugs game this forecasting lark. Sterling having flattered to deceive last week, I was duly deceived, and this week we got what I expected last week. Timing, that's what it's all about... his week I really do think that we will see very little from the currency markets. Yesterday (the 17th) was 'black Friday' in the City of London and big cities throughout the UK. Very little to do with the markets, but it was office party day, and a good number of market participants, in the UK at least, will now be more than a tad jaded in the final push to Christmas.

Look back and wonder..
Can you guess the range for sterling/euro in 2010? It is 1.09 to 1.24, so that leaves us just in the top half of the table at 1.1780 this week. That's quite a big range, and it's worth pointing out that if you needed to buy euros to pay for a €250,000 house this year, the swing between those two rates is over €30,000. Nice if you got it right...

The early rounds
As the year draws to a close I think it would be useful to try to work out the current state of play between the two currencies. Let's take sterling first. The dear old pound has taken a battering over the past three years, and at times it has looked as though the ref ought to step in and end the bout, but it's still there. It has paid heavily for its 'special relationship' with the US financial markets. Mortgage backed securities? No problem my septic friend. Who cares whether or not the borrower will be able to repay when interest rates go up? They're all mixed in with some good stuff, aren't they? Well yes they were , but not enough good stuff to soak up the mess, and the world's financial system was left staring down both barrels of a very sawn off shotgun.
Of course the euro was caught up in all this mess as well, but not to anywhere near the same extent. We all know what a pain it is to get a decent mortgage in France, and it's been like that for years. So many years in fact that if you told a French mortgage lender that you could get a loan of eight times joint salary in the UK, he would assume you were either joking or lying. This caution didn't do France, and the other eurozone countries, any harm at all when things started to get a little 'difficult'. Yes, the European banks lost a few billion here and there, certainly more than they could afford, but there were no Northern Rock or RBS debacles. So the early rounds post 2007 went to the euro, and sterling very nearly went down the pan.

A swing?
Having failed to put sterling on the canvas and out for the count, it is probably no surprise that things started to go wrong for the euro. The pre-fight pundits had always claimed that the euro had a weak chin. Having sixteen very different countries using the same currency and the same interest rate just isn't natural. Fine if they all became one country (Europa?), but that was never going to happen. Each of those countries has a different economic cycle, and governments need to tweak and trim their economic capabilities by moving interest rates up or down, or buying or selling their currency. So what happens when you can't do that anymore? You farm PIGS, that's what happens. Greece gleefully accepts billion upon billion of development aid, and it seeps down through fakelaki into all the wrong back pockets. Ireland suddenly realises that it has mortgage rates at 3%. Begorrah, I can buy a huge house very cheaply, if I can find a bank that will lend me the money. And so it goes, until one day the bills drop on the doorstep, and the PIGS can't pay.

Round 7
So here we are, the pretty girls dressed in skimpy santa outfits have left the ring and the bell has gone. The euro has staggered through the last two rounds, rocked by a desperate lunge by sterling which caught that dodgy chin. We now have two desperately tired contenders, and there are six rounds left. This could go either way
Sterling is still hurting from the financial crisis, and will need to conserve energy (and cash) to get through this match. The euro is also hurting badly. Apart from a bruised chin, it might have a couple of broken ribs.
If they both hang in there for the full 12 round, I think it will be a draw, and we will become used to exchange rates floating gently between 1.25 and 1.30. The biggest worry is that the euro might not make it, and be forced to throw in the towel. In that case sterling will be the winner, but at what cost?

Time for a Christmas break. Here's wishing anyone daft enough to read this stuff (and thank you) a marvelous Christmas and New Year, and I'll be back in 2011 to let you know how round 7 is going.

a bientot, Rob

Weekly F/X comment

2010-12-11T11:49:00.000+01:00

Perhaps the less said about my forecast last week the better. 1.1675 doesn't look much like 1.1950 whichever way you look at it, so what did I get wrong? Euro weakness is the answer, and lots of it. Strife in the Euro camp. This week, Germany rejected a proposal from Luxembourg and Italy that a large chunk of euro zone sovereign debt finance should be replaced with collective Eurobonds, and the Luxembourg prime minister accused Ms. Merkel of being "un-European".

So what's wrong with good old-fashioned Eurobonds?
Germany has now rejected the idea twice. On Monday Germany's finance minister said it was unworkable on technical grounds, because the European treaties would not allow it. On Wednesday, Angela Merkel, the German chancellor, gave the real reason; that a collective Eurobond would provide the wrong incentives, allowing weak states to hide behind the strong. She believes that member states need the financial discipline of the bond markets and separate interest rates. Now to my mind that is indeed pretty un-European. I thought the idea was for a single pan-European interest rate? Apparently not if it means that Germany has to pay more than it needs to in the process.

End game?
It strikes me the eurozone's politicians will have to face the hard question next year of whether to help states such as Ireland engineer a managed default and exit from the euro or make concerted efforts to bring the eurozone into a tighter political and fiscal union and thereby facilitate economic transfers from strong states to the weak. The practical prospect of this happening seems somewhat remote, but without it we could now be looking at the start of the end game for the euro.

A chartist's view
One of my promises when I started writing these articles was that I would avoid technical mumbo-jumbo and chart-speak, so I will choose my words carefully here. Below we have a chart which shows the turbulent history of sterling against the euro over the past 5 years, or to be more precise the past 3 1/2 years. As you can see all was well in the world until half way through 2007, then we lost nearly 10% in the second half of that year. In 2008 the merde really hit the ventilateur, and we lost another 22%. Since then however we have seen a recovery of sorts in both 2009 and 2010. Here comes the technical bit.

Take a look at this link: http://markets.investorschronicle.co.uk/companies/summary.asp?YYY2070_05il4cW/O8fDu6TjdxyEB1/lYp2aAGZomAsCpdYn/Rg=

Look at the four troughs (lowest points) from December 2008 through to now, and mentally (or actually if you like) draw a line linking them all and carrying on into the future, that line will be going 'uphill'. Real chartists out there will be choking on their coffee at this point, but I'm not talking to them. This is called a trendline, and if the chart does indeed carry on in this way sterling will be back above 1.3000 sometime in 2012.

Now I know for a fact that Barclays have lots of chartists, and the bank seems to be listening to them. The bank`s long-term forecast is for sterling to reach €1.28 by this time next year. Barclays view is that “The Coalition is enacting deep structural reform in order to take a lump out of the deficit, which is a risk…It could ultimately be good for the structural growth story in the UK.” Yes, well, maybe and maybe not. I have my own view on the Osborne austerity package, but that's for another day.
A note of caution regarding charts and chartists. What do you think the chartist view was in September 2008, just before sterling fell over the cliff?

So what now?

I have been forced to re-think my entire view of sterling's likely performance pre-Christmas. Somewhat reluctantly I think we may now indeed see an assault on the 1.200 level, so let's go for 1.2025 by the end of next week.

a bientot, Rob

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Weekly F/X Comment

2010-12-04T12:55:00.000+01:00

Now that's more like it. I think I'll give myself 8 out of 10 for last week's predictions, which was that sterling would end up at between 1.1750 and 1.1800 and the actual result is... 1.1750! If you think I'm being a bit mean on that score, I ought to point out that a heck of a lot went on during the week that I hadn't anticipated, and at one point we were over 1.1900 and looking strong. I do however feel particularly pleased that I managed to push through a large customer investment deal at over 1.1800 on Wednesday. Shame I didn't do some for myself.

A big week for England
England? Surely I mean Great Britain, or the UK? No, I mean England, and the scandalous vote for the World Cup venues in 2018 and 2022, with the decisions going to Russia and Qatar. I can only assume that there is an air-conditioning contractor somewhere who is very pleased with his FIFA order of multiple giant reversible Clim domes to supply warm air in 2018 and cool air in 2022. I put this vote well up there as a principal reason for sterling's reversal late this week.
Well actually I don't, but I just wanted to have a moan anyway.

Back to the PIGS
No silly porcine frivolity this week, but there is no escaping the fact that sterling/euro movement is still being driven by fear (or the lack of it) of contagion amongst the peripheral eurozone countries. The euro survived a tough week, and came out fighting. At one point fears that Ireland's problems would engulf Portugal and Spain looked as if they would push the euro into a downward spiral. The ECB held interest rates at 1% as expected, but the markets had been looking to governor Trichet to announce strong measures to calm market nerves, but he didn't, and that was when we saw rates over 1.1900 briefly.
Eventually however, the ECB swung into action. A threatened market rout forced the central bank into a new wave of bond purchases. As a direct result the extra yield that investors demand to hold Portuguese 10 year bonds over German bunds fell below 300 basis points (that's 3%) for the first time since August. Ireland’s 10 year yield plunged 30 basis points to 8.2 percent yesterday and the Spanish yield, which hit 5.67 percent on Nov. 30, closed at 5.1 percent. Lots of figures there but I think you can see that the effect was to take pressure off the debt covering charges suffered by the peripheral countries.
The latest round of the crisis is forcing leaders once more to assert their support for the euro. Angela Merkel, the European Paymaster-General, said: “The German government stands behind the euro “It is fighting for a stable euro and will do everything within its power” to push other EU countries toward embracing a “culture of stability” in their public finances.
Options that the EU leaders may consider if the crisis were to worsen include boosting their 750 billion euro temporary rescue fund or turning it into an asset-buying program; cutting the interest rate charged on bailout loans such as the Irish package, or issuing joint bonds for the all the euro nations. Against this potential onslaught, sterling has continued weak domestic statistics and a VAT rise to hit demand from January onwards. Not much in the way of ammunition really.

So what now?
As we approach Christmas interest in the FX markets will wane. After all, there are an awful lot of Christmas parties to fit into the month, and also it is bonus negotiation time, so no-one wants to lose any money. I think sterling's push for 1.200 has fizzled out for this year. If you really need to buy euros, I'd do it sooner rather than later. But remember, it's just my guess! 1.1675 for me next week.

a bientot, Rob

Where now for Sterling?

2010-01-02T10:52:00.000+01:00

Happy New Year! Let’s hope for fewer financial hangovers this year. I left you in early December with my view that Sterling would fluctuate between 1.10 and 1.13 for the rest of the year, and that’s exactly what it did, ending up at 1.1291. That means that I was correct for all of December. Long may that continue, but somehow I doubt it.

Believe it or not, Sterling is now over 6% higher against the Euro than it was a year ago. Hard to believe, isn’t it? A year ago of course Sterling was at its all time low. It did improve to 1.20 during the year, but then came QE and that all changed.

So where to now? Sterling is still hampered by severe doubts over the economy and rising public debt. And yet there was enough interest in Sterling towards the end of December to help forge a solid recovery against the Euro.

I feel that we will need to wait until the election to get any true feeling for where Sterling is going next. Until then we will continue to bounce around in a broad range of 1.08 to 1.13. As we are at the top of that range now, I forecast that Sterling will struggle when markets open this week, and we will see a fall to around 1.1050 by next weekend.

FX Comment and Forecast

2009-11-15T11:22:00.000+01:00

FRANCE FINANCIALS WEEKLY F/X COMMENT

Last week I was hoping that sterling would start to make some headway against the euro. A week later we are precisely where we started, at 1.1190. After a good start to the week, which saw sterling reach a 3 month high against the euro, it fell back sharply in midweek, scuppered by two major events. Firstly the S&P ratings agency said Britain, due to its huge levels of government debt which we've talked about here before, was the major economy most at risk of losing its triple-A rating. This hurt the pound, as investors and speculative traders often sell Sterling on any suggestion Britain may lose its top-notch rating. The second culprit was our friend Mervyn King, who said the Bank of England was open-minded about pumping more money into the economy and highlighted the benefits of a weak pound.

So, despite good recovery for the pound over the last 4 weeks, this week shows that Sterling is still very fragile and any negative news can quickly affect exchange rates. As unemployment is up, and the governor of the BoE warning that the government have no plan at all to repay the huge levels of government debt, the outlook is still poor. Couple this with the fact that interest rates are likely to remain low for some time, we are unlikely to see any significant recovery for the pound in a hurry. That said, I still feel that the overall trend is up. We’ll just need to overcome a few hurdles on the way.

AND NOW… THE FORECAST

My forecasts will reflect my personal views, and certainly not those of the Spectrum IFA Group. My ongoing view is still that sterling is undervalued below 1.2500 Euros.
Having ended the week all square, I am hopeful that sterling can resume its upward track against the Euro. There are important announcements due this week, which could well affect sterling. The minutes of the November MPC meeting feature in the UK and should provide further background in terms of the central bank's decision to extend its QE activities. On the data front, it is also a pretty key week with consumer prices, retail sales, public sector borrowing, Rightmove house prices and the CBI’s latest industrial trends survey all due for release.

If all goes well, and let’s face it, that is unlikely, I hope to see sterling in the 1.1300s next week.

Focus on Sterling

2009-10-27T17:08:00.001+01:00

The hot topic of the moment continues to be sterling, and its woeful new position as doormat currency of the western world. Mervyn King seems to quite like the view from down here. There is a theory that he thinks it makes life easier for UK exporters. I don’t agree with that, and think instead he is happy just to make life more difficult for importers. Whichever it is, he’s not going to go out of his way to help talk up sterling in the foreseeable future.

So where does that leave you and me and our sterling nest-eggs back in the UK, or more likely in Jersey, Guernsey or the IOM? Actually, I’m going to withdraw smugly from this group, as I read my own forecasts and changed all my sterling for euros between 2004 and 2006 at an average of 1.4400 or thereabouts. I know those of you who didn’t don’t like to be reminded of the fact, but you were taking a big financial risk, and just now it doesn’t look too good.

For what it’s worth, my personal view is that sterling is undervalued, and it will recover. Not back to the dizzy heights of 1.5000 but possibly back to between 1.2500 and 1.3000, where I think we will eventually settle for entry into the euro in years to come. Now you all know that I think that anyone over here with any spare cash at all should be holding that cash in a tax efficient manner in France (no, I’m not going to say it). I just want to stress this week that sterling and tax efficient investing in France are not mutually exclusive. You can shelter your sterling from income tax and social charges; and you can retain the ability to choose when to convert to euros. In fact the case for doing this is so strong that I often wonder why I have to make it at all.

Financial regulators in France

2009-08-03T16:03:00.002+02:00

A few weeks ago in my column in the Aude and Ariege Flyer I referred to a certain Mr Warren Templeton, a low-life swindler who was operating in the Dordogne region. His case seems to have sparked a great deal of interest in the regulation and monitoring of financial advisers; and so it should too. I am seeing an increasing number of clients who have come to me because they are worried about advice they have taken either before coming to France, or within a short period after their arrival here. I’m sorry to report that in a lot of cases the advice they acted upon was either born out of ignorance or ineptitude, and in some cases worse.

At Spectrum we have a clear policy; we believe that it is in the clients’ interests for us to be registered and regulated in each of the countries where we offer our services to expatriates. This has always been our policy. We have always encouraged our clients to maintain their relationship with their UK financial adviser if they continue to hold UK based investments. If that adviser is competent, he will know when his client should be talking to us.

The publicity surrounding this case has prompted some interesting and conflicting views in the national English-in-France press. One large spread advert seems to imply that the likes of Templeton are clowns; not a view that I think his victims will share. Another article claims quite openly that it is OK for expat advisers in France not to seek regulation here, because they don’t speak French well enough and may misunderstand the rules.

It’s a funny old world.

Tax Changes for Lower Paid

2009-04-21T11:04:00.002+02:00

France financial minister announces tax breaks for lower paid workers. Anyone in the 5.5% tax bracket will get an 80% refund of their tax for 2008.

Welcome to the France Financial blog

2009-02-03T14:41:00.005+01:00

France Financial specialises in helping English speaking expatriates currently living in France, or intending to do so in the future, to protect and enhance their finances. Our aim is to create and provide solutions by way of a broad range of products and services. We will work with you to plan your finances and make the most of the opportunities offered by the expatriate lifestyle.

I have produced this blog so that I can keep you completely up to date with the changes in legislation and circumstances that can occur and which may affect your financial arrangements in France so that you are fully informed and can take the necessary steps to truly protect or enhance your finances.

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