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.
Saturday, March 19, 2011
Saturday, March 12, 2011
F/X weekly comment
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
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
Saturday, March 5, 2011
Weekly F/X comment
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.
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.
Friday, February 25, 2011
Weekly F/X Comment
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!
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!
Saturday, February 12, 2011
Weekly F/X comment
Pretty much a stalemate at the end of this week, where we ended up at 1.1830. That feels like quite a result for me compared to recent drubbings in the forecasting stakes. It also gives me a chance to leave my chips on the table from last week, and continue to look for renewed sterling strength in the coming weeks. A one of my friends and readers pointed out during the week, if I really wanted sterling to go up, I'd forecast a collapse. The risk is of course that I'd be right for once!
Still back on track?
I still feel better about sterling this week. The fall down into the 1.16's was a serious reversal, but I'm still looking for those reasons to be cheerful. There are more and more observers in the market that are starting to look for sterling, and indeed European, interest rate rises. The betting is that the BOE will move first. Traditionally the ECB, having picked up the habit from the Bundesbank, hate to be trendsetters. The fact that the rates did not go up this week hurt sterling initially, but that was just because speculators had factored in a 20% chance of a UK rate hike, and when it didn't happen, they sold their short term sterling holdings, making the rate dip.
Egyptian Pound
Can it be a coincidence that the Egyptian currency is the pound? Of course the relevance is zero, but it is interesting that the crisis in Egypt has been helping the Euro crisis currencies go about their business relatively unnoticed for the last couple of weeks, and the PIGS have been able to quietly sort themselves out away from the market's full glare. That was until Thursday, when a Portuguese bond auction needed intervention from the ECB to prevent yields hitting double digits. This upset the Euro investor market and helped the pound regain its losses after the interest rate decision.
On Friday sterling received more support when the PPI input data, which measures the change in the price of goods and raw materials purchased by manufacturers, indicated further inflation worries by coming out much stronger than expected. Next week could be choppy on the figures front with Tuesday’s CPI and then the biggie, the BOE inflation report on Wednesday.
Why a rate rise?
Raising rates takes demand out of the economy and slows down inflation. Higher rates also strengthen the pound due to the higher yield for investors. Unfortunately there is also a downside. It also increases the cost of borrowing and could bring with it a dip back into recession, especially when taken in tandem with the austerity package. My money is on a UK rate rise in May, with speculation before then adding to sterling's attraction.
So, as I said at the start, I'm keeping my chips on the table. Early 1.2000s for me by next week.
A bientot, Rob
Still back on track?
I still feel better about sterling this week. The fall down into the 1.16's was a serious reversal, but I'm still looking for those reasons to be cheerful. There are more and more observers in the market that are starting to look for sterling, and indeed European, interest rate rises. The betting is that the BOE will move first. Traditionally the ECB, having picked up the habit from the Bundesbank, hate to be trendsetters. The fact that the rates did not go up this week hurt sterling initially, but that was just because speculators had factored in a 20% chance of a UK rate hike, and when it didn't happen, they sold their short term sterling holdings, making the rate dip.
Egyptian Pound
Can it be a coincidence that the Egyptian currency is the pound? Of course the relevance is zero, but it is interesting that the crisis in Egypt has been helping the Euro crisis currencies go about their business relatively unnoticed for the last couple of weeks, and the PIGS have been able to quietly sort themselves out away from the market's full glare. That was until Thursday, when a Portuguese bond auction needed intervention from the ECB to prevent yields hitting double digits. This upset the Euro investor market and helped the pound regain its losses after the interest rate decision.
On Friday sterling received more support when the PPI input data, which measures the change in the price of goods and raw materials purchased by manufacturers, indicated further inflation worries by coming out much stronger than expected. Next week could be choppy on the figures front with Tuesday’s CPI and then the biggie, the BOE inflation report on Wednesday.
Why a rate rise?
Raising rates takes demand out of the economy and slows down inflation. Higher rates also strengthen the pound due to the higher yield for investors. Unfortunately there is also a downside. It also increases the cost of borrowing and could bring with it a dip back into recession, especially when taken in tandem with the austerity package. My money is on a UK rate rise in May, with speculation before then adding to sterling's attraction.
So, as I said at the start, I'm keeping my chips on the table. Early 1.2000s for me by next week.
A bientot, Rob
Saturday, February 5, 2011
Weekly F/X comment
Back in France at last! It's lovely to visit family and friends; check out your old local; do the tour of ethnic restaurants, and 'shop for England'. It is also very hard work, very tiring, and makes you put on weight. Throw in a corporate trip to Berlin at the end and things get even worse. Still, you can't have everything, can you?
Back on track?
I also feel better about sterling this week. The fall down into the 1.16's came as a nasty shock to me and I suspect a good few others, but last week I started to look for some 'reasons to be cheerful'. Let's face it, if Ian Dury could do it, so should we all.
We are at 1.1860 at the moment. I was looking for a consolidation at 1.1725, but I'm more than happy to see us here, and I'm now looking for another go at the 1.2000s.
Sterling up
The markets worst fears about the preliminary GDP figures seem to be dissipating. The pound was boosted by a return to growth in the construction sector in January.
Currency strategists are now saying that the better than expected construction figures add fuel to the interest rate hike lobby. The construction data follows similar positive news from the manufacturing sector, which showed UK manufacturing in January expanding at its fastest rate since 1992.
House prices also rose more than expected, and on Friday the services sector shrugged off December's snow problems and posted an impressive PMI figure. Still too early to tell, but it is beginning to look as though fears of a double dip recession were overdone, and we can expect a good revision to those awful fourth quarter figures.
Euro down
markets are starting to focus on Europe's problems again. The ECB not surprisingly left interest rates unchanged again this week. Then in his after - decision press conference M. Trichet tried his usual tactic of warning of the need for vigilance and future interest rate rises. The aim here is to get the benefit of an interest rate hike without actually having one. This time however the market called his bluff, and started selling the euro. A rate hike while the PIGS are still in such dire straits would be suicidal. Subsequently the euro lost its recent strength against the dollar and sterling, sliding by over a cent against both. The single currency was not helped by a poor Spanish bond auction or weak German retail sales either.
OK, time for me to put my money where my mouth is. Thank goodness I never have to do that! Where for sterling next weekend? 1.2000 please, and quick about it...
Back on track?
I also feel better about sterling this week. The fall down into the 1.16's came as a nasty shock to me and I suspect a good few others, but last week I started to look for some 'reasons to be cheerful'. Let's face it, if Ian Dury could do it, so should we all.
We are at 1.1860 at the moment. I was looking for a consolidation at 1.1725, but I'm more than happy to see us here, and I'm now looking for another go at the 1.2000s.
Sterling up
The markets worst fears about the preliminary GDP figures seem to be dissipating. The pound was boosted by a return to growth in the construction sector in January.
Currency strategists are now saying that the better than expected construction figures add fuel to the interest rate hike lobby. The construction data follows similar positive news from the manufacturing sector, which showed UK manufacturing in January expanding at its fastest rate since 1992.
House prices also rose more than expected, and on Friday the services sector shrugged off December's snow problems and posted an impressive PMI figure. Still too early to tell, but it is beginning to look as though fears of a double dip recession were overdone, and we can expect a good revision to those awful fourth quarter figures.
Euro down
markets are starting to focus on Europe's problems again. The ECB not surprisingly left interest rates unchanged again this week. Then in his after - decision press conference M. Trichet tried his usual tactic of warning of the need for vigilance and future interest rate rises. The aim here is to get the benefit of an interest rate hike without actually having one. This time however the market called his bluff, and started selling the euro. A rate hike while the PIGS are still in such dire straits would be suicidal. Subsequently the euro lost its recent strength against the dollar and sterling, sliding by over a cent against both. The single currency was not helped by a poor Spanish bond auction or weak German retail sales either.
OK, time for me to put my money where my mouth is. Thank goodness I never have to do that! Where for sterling next weekend? 1.2000 please, and quick about it...
Sunday, January 30, 2011
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.
Yes,OK,I can hear the fat lady singing. I think we can say with a fair degree of certainty that sterling will not end the month at 1.2300 or anywhere near it. Definitely a mugs game this f/x forecasting! Sterling has taken a big hit this week after a series if body blows from market data releases. The latest was a big drop in consumer confidence, indicating the latest round of government spending cuts and the VAT rise is hitting consumers where it hurts most – in their pockets. This was the sharpest fall since 1992 and the lowest reading in nearly two years.
Before that we had an absolute shocker of a GDP number which showed that the UK economy not only failed to grow I the final quarter of 2011, it actually shrank. For a while some of the optimists amongst market commentators pointed at the adverse weather conditions, but Germany’s weather was the same as ours, and their economy grew strongly in the same period.
Speaking of Germany, I’m writing this article in a hotel room in Berlin. Germany is impressive. Big and strong. They don’t do things by halves here. There is a fishtank in the lobby. Nothing very impressive about that? Well this fishtank has 1500 tropical fish in it. It holds 1.5 million litres of water. It is conical, 20 metres high, and the lift goes up through it. That is one big fishtank. Germany is like a big merc or a beamer. By comparison France is a clio, and I’m very much afraid that at the moment the UK is a Nissan Sunny, without the sun.
The markets are likely to be wary of the possibility for further poor UK data in the coming weeks, watching closely for signs that coalition austerity measures are putting too much of a strain on the economy. They will also be looking for clues as to monetary policy as rising inflation becomes an ongoing concern.
Reasons to be cheerful?
One
Germany is one side of the euro story. If all the member states were as strong the euro would be invincible. Thankfully , they’re not.
Two
It won’t take much more poor economic data and inflation fears to bring UK interest rises back into the picture, and that may help sterling.
Three
As bad as this week has been, we still have sterling over 1.1650. That is really quite surprising (to me anyway), and quite reassuring. Supply and demand decides rates, and there is apparently enough demand for sterling to keep it’s head above water.
Not too much happening his week, which could be a problem for the pound. No news is not necessarily good news, and rumour can be more harmful than fact. I think we will do well to consolidate above the 1.1500 level this week, but I think it will happen, and I’m looking for 1.1725 by next Friday.
Sunday, January 23, 2011
Hi everyone. I’ve been a bit ‘disconnected’ from the to-ing and fro-ing of the sterling/euro market this week. I suppose it’s no surprise that our favourite exchange rate hardly warrants a second glance over in the pound stalls, and I’ve been dashing round Greater Brittany doing the family rounds since last Monday. I do however remember calling for 1.2300 before the month’s out, and checking on google this morning I see that my forecast is still a little, er, lacking in accuracy? I’m closer than some though. I asked a group in my old local in Chelmsford on Friday night what they thought the current rate was. Two said about 1.17 or 1.18 (spot on); one said 1.84 (miles away but I could see where he was coming from, as the euro against sterling is about 0.84), and the last said about 1 to 1, which means he’s probably bought a sandwich on Ryanair recently.
I have also to confess that I’ve been a bit starved of information this week. Modern life these days means that houses with young children rarely have the news on television. That and the fact that my latest piece of technology stubbornly refuses to link up with any wi-fi signals has left me in a strange feeling of limbo. Not comfortable for someone with a bad back I can tell you.
I can however make an educated guess as to what has been going on this week. Retail sales figures for the Christmas period will have been weak. What a surprise. Did it snow at all? That will have been enough to put the wind up sterling though, and the whispering voices will be out in force casting doubts about the UK economies ability to recover this year when saddled with the austerity package. A load of old tosh I (still) say (for now). For me the euro is still in deeper merde than sterling, and I’ll hang on to my 1.23 forecast til the fat lady has sung.
I’m not sure that I will have the chance to be much more informative next week though. I’m going to swap dear old blighty for four days in Berlin from this Thursday. It will be interesting to see life from the political heart of the Euro powerhouse. I’ll be there for Spectrum’s annual conference, which for any doubters amongst you is a serious financial conference, bringing together over 40 Spectrum advisers from 6 European counties, along with financial experts from many fields, including banking, investments and fund management companies. Jolly? Of course not...
Auf wiedersehen, Rob
I have also to confess that I’ve been a bit starved of information this week. Modern life these days means that houses with young children rarely have the news on television. That and the fact that my latest piece of technology stubbornly refuses to link up with any wi-fi signals has left me in a strange feeling of limbo. Not comfortable for someone with a bad back I can tell you.
I can however make an educated guess as to what has been going on this week. Retail sales figures for the Christmas period will have been weak. What a surprise. Did it snow at all? That will have been enough to put the wind up sterling though, and the whispering voices will be out in force casting doubts about the UK economies ability to recover this year when saddled with the austerity package. A load of old tosh I (still) say (for now). For me the euro is still in deeper merde than sterling, and I’ll hang on to my 1.23 forecast til the fat lady has sung.
I’m not sure that I will have the chance to be much more informative next week though. I’m going to swap dear old blighty for four days in Berlin from this Thursday. It will be interesting to see life from the political heart of the Euro powerhouse. I’ll be there for Spectrum’s annual conference, which for any doubters amongst you is a serious financial conference, bringing together over 40 Spectrum advisers from 6 European counties, along with financial experts from many fields, including banking, investments and fund management companies. Jolly? Of course not...
Auf wiedersehen, Rob
Saturday, January 15, 2011
Weekly F/X Comment
Well if the last week of 2010 was boring, 2011 is showing signs of being determined to make up for it. Last week I lauded the idea of £/€ at 1.2300, and on Thursday morning it was trying hard to hold on to 1.1750. Good job I don't get paid by results... (maybe in a sense I do). So what is going on?
Sterling own goal
Surprise surprise! We're on a roll, let's see what we can do to sabotage it. Two things combined will certainly help, PPI (Producer Price Input) inflation figure up 2% higher than expected, and the CEBR (Centre for Economics and Business Research) has estimated that UK growth will slide back to 1.1% this year compared with a forecast of 2.1%. So more double-dip recession fears for the faint-hearted.
Euro strikers on form
Funny old world. Spain and Portugal paraded with their necks on the chopping block at the bond auctions, and what happens? The fickle investment world lets them off the hook! Also strengthening the Euro was the comments by European Central Bank president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment lemmings to buy the euro.
Rubbish ref!
This really is a load of old tosh! If you have any euros to sell, sell them now. This rate must go up. I loved Jeremy Cook's comment from WorldFirst f/x:
'Sometimes life throws you a curve ball which you miss, take in the teeth and end up with a bloody mouth. Jean-Claude Trichet, head of the ECB's rate setting committee, did that to those of us who think the euro is clinging on to its current value by its fingernails yesterday by announcing that the Euro area faces significant inflation pressures in the near future. This, plus the fact that these pressures would be 'closely monitored', sent the markets into spasm, a frenzy of euro buying with traders betting on an interest rate hike sometime this year. Now, an interest rate rise in the Eurozone is not the dumbest idea we've heard in a while (step forward Qatari World Cup) but it runs it close. Any tightening of monetary policy would be such a catastrophe for those peripheral economies shouldering troubling amounts of debt that the squeals of pain would be heard in every corner of the world. A rate rise won't happen for a long, long time and nor should it. '
Absolutely spot-on. If the markets don't see sense and sell the euro soon, I'll... well I don't know what I'll do. Hats are mostly indigestible after all. Lose money I suppose.
This week?
Reason does not seem to be on my side, but I don't care. I'm still looking for 1.23 before the month's out!
Sterling own goal
Surprise surprise! We're on a roll, let's see what we can do to sabotage it. Two things combined will certainly help, PPI (Producer Price Input) inflation figure up 2% higher than expected, and the CEBR (Centre for Economics and Business Research) has estimated that UK growth will slide back to 1.1% this year compared with a forecast of 2.1%. So more double-dip recession fears for the faint-hearted.
Euro strikers on form
Funny old world. Spain and Portugal paraded with their necks on the chopping block at the bond auctions, and what happens? The fickle investment world lets them off the hook! Also strengthening the Euro was the comments by European Central Bank president Jean Claude Trichet saying that they would have no problem raising interest rates to combat price inflation. Higher rates represent a higher return for investors, and so this also spurred investment lemmings to buy the euro.
Rubbish ref!
This really is a load of old tosh! If you have any euros to sell, sell them now. This rate must go up. I loved Jeremy Cook's comment from WorldFirst f/x:
'Sometimes life throws you a curve ball which you miss, take in the teeth and end up with a bloody mouth. Jean-Claude Trichet, head of the ECB's rate setting committee, did that to those of us who think the euro is clinging on to its current value by its fingernails yesterday by announcing that the Euro area faces significant inflation pressures in the near future. This, plus the fact that these pressures would be 'closely monitored', sent the markets into spasm, a frenzy of euro buying with traders betting on an interest rate hike sometime this year. Now, an interest rate rise in the Eurozone is not the dumbest idea we've heard in a while (step forward Qatari World Cup) but it runs it close. Any tightening of monetary policy would be such a catastrophe for those peripheral economies shouldering troubling amounts of debt that the squeals of pain would be heard in every corner of the world. A rate rise won't happen for a long, long time and nor should it. '
Absolutely spot-on. If the markets don't see sense and sell the euro soon, I'll... well I don't know what I'll do. Hats are mostly indigestible after all. Lose money I suppose.
This week?
Reason does not seem to be on my side, but I don't care. I'm still looking for 1.23 before the month's out!
Sunday, January 9, 2011
Weekly F/X comment
Hello and Happy New Year to all.
I had intended to start this year's missives last weekend, but to tell you the truth it was so boring I didn't bother, and as I don't get paid for doing it anyway, I decided to let my New Year hangover rule my agenda for the weekend. Indeed sterling was suffering a fair hangover of its own, languishing around the 1.15 to 1.16 level, mainly due to a complete lack of interest. I think there might be a deeper meaning there, but I won't follow it up. This week however, it's all change, and while all the old protagonists are still on stage, there seems to be a new energy in the market.
Woe betides the euro
It has been a rough start to 2011 for the euro and things don't look like getting much better next week, with a great juicy chunk of PIG bond sales on the way for the markets to devour. The euro fell over 4% against sterling this week, its worst weekly loss since mid-August. Notice I say that the euro fell against sterling, not sterling rose against the euro. Theoretically the same thing, I know, but I like to deal in subtleties.
Borrowing costs for Portugal surged this week as it prepares to sell 20 billion euros in bonds. Spain and Italy need to raise a combined total of 317 billion Euros to manage their imminent debt maturities. This should really focus the market's mind on how it will digest peripheral (a polite word for PIG) government bonds issues in 2011. Higher funding costs should put added pressure on their already weak economies and heighten concerns about their ability to repay debt. Portugal will dip their toes in the water on Wednesday, and Spain and Italy will dive in on Thursday. If you're wondering when Italy became part of this mess, they have indeed been given joint 'I' status with Ireland.
Talk of euro woes just wouldn't be right without mentioning Ireland, and the euro wasn't helped by rumours the Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations. This only serves to reinforce the view that the EU's struggle with rising debt and borrowing costs will continue in 2011.
Herr today, gone tomorrow?
From a political standpoint, the euro’s strength into Christmas week was not unexpected. Politicians and their banker pals will do anything they can to avoid a crisis during Christmas. This does make sense, as so many of the general public are on holiday at the time, and free to focus on the issues (never a good thing for politicians).
Now that the holiday season is over, and the European crisis spreading through the PIGs, the question is how much more will Germany put up with? The big guns have already been deployed, with hundreds of billions of the euro bailout funds already spent. The issue now is whether Germany will be willing to supply more ammunition, or might it give up on the Eurozone and choose to end the bailouts? France wants Germany to join its plan to make the EU council a kind of economic government that would oversee all future bailout efforts. Germany, in contrast, doesn’t want to create any new organisations and wants to promote the existing European Financial Stability Facility into a permanent feature that would oversee the ongoing crisis, removing the ECB from the front line and demanding stricter cost-cutting measures from future recipients of bailouts.
Angela Merkel’s CDU party faces seven state elections in 2011. Losing these could mean no additional term for her in 2013, so she needs to be careful not to further irritate and already outraged German population. 51% of Germans are unhappy with the euro while 77% say joining the EU has brought them no benefit. All eyes are therefore on the German political arena for clues as to what’s coming for the euro. If Germany doesn’t back the euro fully as a currency now, things will get very interesting indeed.
I used to be a fully paid up member of the 'euro is too big to fail' brigade. I'm not going to renew my subscriptions this year.
This week?
The euro is on the slide. I bought some on Thursday at 1.18 and I'm regretting it already. As Kevin Keegan might have once said ''I'd love it we got to 1.25, I'd really love it.' I don't think we'll get all the way there this week, but 1.23 would be nice, wouldn't it?
a bientot, Rob
I had intended to start this year's missives last weekend, but to tell you the truth it was so boring I didn't bother, and as I don't get paid for doing it anyway, I decided to let my New Year hangover rule my agenda for the weekend. Indeed sterling was suffering a fair hangover of its own, languishing around the 1.15 to 1.16 level, mainly due to a complete lack of interest. I think there might be a deeper meaning there, but I won't follow it up. This week however, it's all change, and while all the old protagonists are still on stage, there seems to be a new energy in the market.
Woe betides the euro
It has been a rough start to 2011 for the euro and things don't look like getting much better next week, with a great juicy chunk of PIG bond sales on the way for the markets to devour. The euro fell over 4% against sterling this week, its worst weekly loss since mid-August. Notice I say that the euro fell against sterling, not sterling rose against the euro. Theoretically the same thing, I know, but I like to deal in subtleties.
Borrowing costs for Portugal surged this week as it prepares to sell 20 billion euros in bonds. Spain and Italy need to raise a combined total of 317 billion Euros to manage their imminent debt maturities. This should really focus the market's mind on how it will digest peripheral (a polite word for PIG) government bonds issues in 2011. Higher funding costs should put added pressure on their already weak economies and heighten concerns about their ability to repay debt. Portugal will dip their toes in the water on Wednesday, and Spain and Italy will dive in on Thursday. If you're wondering when Italy became part of this mess, they have indeed been given joint 'I' status with Ireland.
Talk of euro woes just wouldn't be right without mentioning Ireland, and the euro wasn't helped by rumours the Swiss National Bank has stopped accepting Irish government bonds as collateral in its money market operations. This only serves to reinforce the view that the EU's struggle with rising debt and borrowing costs will continue in 2011.
Herr today, gone tomorrow?
From a political standpoint, the euro’s strength into Christmas week was not unexpected. Politicians and their banker pals will do anything they can to avoid a crisis during Christmas. This does make sense, as so many of the general public are on holiday at the time, and free to focus on the issues (never a good thing for politicians).
Now that the holiday season is over, and the European crisis spreading through the PIGs, the question is how much more will Germany put up with? The big guns have already been deployed, with hundreds of billions of the euro bailout funds already spent. The issue now is whether Germany will be willing to supply more ammunition, or might it give up on the Eurozone and choose to end the bailouts? France wants Germany to join its plan to make the EU council a kind of economic government that would oversee all future bailout efforts. Germany, in contrast, doesn’t want to create any new organisations and wants to promote the existing European Financial Stability Facility into a permanent feature that would oversee the ongoing crisis, removing the ECB from the front line and demanding stricter cost-cutting measures from future recipients of bailouts.
Angela Merkel’s CDU party faces seven state elections in 2011. Losing these could mean no additional term for her in 2013, so she needs to be careful not to further irritate and already outraged German population. 51% of Germans are unhappy with the euro while 77% say joining the EU has brought them no benefit. All eyes are therefore on the German political arena for clues as to what’s coming for the euro. If Germany doesn’t back the euro fully as a currency now, things will get very interesting indeed.
I used to be a fully paid up member of the 'euro is too big to fail' brigade. I'm not going to renew my subscriptions this year.
This week?
The euro is on the slide. I bought some on Thursday at 1.18 and I'm regretting it already. As Kevin Keegan might have once said ''I'd love it we got to 1.25, I'd really love it.' I don't think we'll get all the way there this week, but 1.23 would be nice, wouldn't it?
a bientot, Rob
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