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.
Friday, November 11, 2011
Saturday, November 5, 2011
F/X weekly comment
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.
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.
Saturday, October 29, 2011
F/X Weekly Comment
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.
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.
Saturday, October 22, 2011
F/X weekly comment
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.
Saturday, October 15, 2011
F/X weekly comment
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
Friday, October 7, 2011
F/X weekly comment
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...
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...
Thursday, September 29, 2011
F/X weekly comment
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.
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.
Saturday, September 24, 2011
F/X weekly comment
So we started the week on 1.1450 and we ended at? 1.1460 - exciting stuff, not. That's about it really, but I suppose I'm expected to write a bit more than that. Actually the message is starting to get a little tiresome. Sterling is in trouble because the UK can't get off the ground as far as a recovery from the recession is concerned. The Euro is in trouble because all the members of the Euro that shouldn't really have been in it in the first place now find that they can't afford to repay the debts that have built up to the rich European nations (and others) since the Euro began. There are a limited number of ways that you can continually narrate the same story.
But what the heck, something interesting must have happened this week?
USD strength
Yes, I know that's got bagger all to do with the GBP/EUR rate, but bear with me. The reason the dollar strengthened wasn't that the USA looks like a good place to invest, or the economy is booming. Far from it. Political divisions, rising jobless and falling house prices make the USA another basket case, but the dollar is a reserve currency. That means that when everything else around us is falling down, speculators will buy the dollar. It now seems that in addition to growth in Europe and the states being static at best, China and India are now falling by the wayside, and the other BRIC countries don't have much to offer either (That's Brazil and Russia). Gloomsters are starting to talk about a global recession again. Yawn.
QE
Yes, money printing is back on the agenda. With an air of a gropu of punters getting increasingly desperate to reverse a bad run of luck, Merv and his men are considering another throw of the QE dice. £50bn here, £50bn there, surely it must do some good eventually? Maybe, maybe not, but currency dealers don't like it. Something about an old fashioned view that it might increase inflation in future. Surely not? (actually a racing certainty if you ask me).
Euro
Can't really leave the Euro out of this, can we? The Greek finance minister called talks with nearly all the international debt agencies 'productive'. I bet they were. As far as I'm concerned any talk that brings Greece closer to bankruptcy or a debt restructuring will put the euro under more and more pressure, so we should still see sterling having the occasional look at 1.20.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet. (and yes, I do know that this paragraph was in last week's comment)
1.1375 for me. A bit boring really. We shall see...
But what the heck, something interesting must have happened this week?
USD strength
Yes, I know that's got bagger all to do with the GBP/EUR rate, but bear with me. The reason the dollar strengthened wasn't that the USA looks like a good place to invest, or the economy is booming. Far from it. Political divisions, rising jobless and falling house prices make the USA another basket case, but the dollar is a reserve currency. That means that when everything else around us is falling down, speculators will buy the dollar. It now seems that in addition to growth in Europe and the states being static at best, China and India are now falling by the wayside, and the other BRIC countries don't have much to offer either (That's Brazil and Russia). Gloomsters are starting to talk about a global recession again. Yawn.
QE
Yes, money printing is back on the agenda. With an air of a gropu of punters getting increasingly desperate to reverse a bad run of luck, Merv and his men are considering another throw of the QE dice. £50bn here, £50bn there, surely it must do some good eventually? Maybe, maybe not, but currency dealers don't like it. Something about an old fashioned view that it might increase inflation in future. Surely not? (actually a racing certainty if you ask me).
Euro
Can't really leave the Euro out of this, can we? The Greek finance minister called talks with nearly all the international debt agencies 'productive'. I bet they were. As far as I'm concerned any talk that brings Greece closer to bankruptcy or a debt restructuring will put the euro under more and more pressure, so we should still see sterling having the occasional look at 1.20.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet. (and yes, I do know that this paragraph was in last week's comment)
1.1375 for me. A bit boring really. We shall see...
Sunday, September 18, 2011
F/X weekly comment
I think it was obvious from my final comment last week that I was doubtful whether sterling would be able to consolidate at the 1.16 level. It is no surprise to me that we find ourselves down at the 1.1450 level at the start of this week. So what went wrong this time?
Same old sterling (reprise)
There was enough data last week to support any negative outlook for the UK economy. The RICS Housing Survey showed that 23 percent more surveyors recorded falling rather than rising prices in August, while the UK house price index dropped 1.5 percent in July. Retail sales shrank 0.2% in August, and inflation continued its upward march, increasing to 4.5% in August. Goodness knows what the real rate is by the way.
Osborne and Clegg wittered on about the possibility of increasing the monetary stimulus (QE/Printing Money) to support the economy. Adam Posen, one of Merv's merry men, said the BoE should purchase as much as £100 billion in securities over the next three months. Currently the program stands at £200 billion.
Not one bit of any of this news is designed to give sterling any help at all.
Euro tottering?
All this of course is happening against the backdrop of the Euro under severe pressure of its own. Greece is teetering (different from tottering) on the brink of default, and no-one can really predict what the outcome of that would be, other than an almighty mess. Portugal, Spain, Ireland and Italy watch with interest, with maybe a touch of blind panic mixed in.
Some respite for the Euro came with a move by the central banks of the USA, UK, Japan and Switzerland, and also the ECB, to provide additional lending facilities, and this will help counter fears about the exposure of banks in the EU to eurozone sovereign debt. The debt problems had made the banks reluctant to lend and this in turn has created funding problems.
There was also further help for the Euro after European Commission President Jose Manuel Barroso said Euro bonds could be introduced. This would effectively share out Greece's (and other problem country's) debt, with sovereign bonds being replaced by pan-European bonds. Needless to say, The Germans aren't keen.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet.
It will be interesting this week to monitor the data due for release. In the eurozone, we get the first look at sentiment and activity surveys for September with the German ZEW (Centre for European Economic Research - work that one out) expectations index and eurozone PMIs due for release. All are expected to slip further, confirming once again that the European economy has lost considerable momentum since the beginning of the year. A poor set of numbers could further fuel talk that the ECB may be forced to reverse the rate hikes implemented earlier in the year. Markets will also be watching comments from the Merv's mate Clude Trichet who is due to speak on Friday.
In the UK, the highlight of the week will undoubtedly be Wednesday’s release of the minutes of the September BoE policy meeting.
Net result? 1.1375 for me. A bit boring really. We shall see...
Same old sterling (reprise)
There was enough data last week to support any negative outlook for the UK economy. The RICS Housing Survey showed that 23 percent more surveyors recorded falling rather than rising prices in August, while the UK house price index dropped 1.5 percent in July. Retail sales shrank 0.2% in August, and inflation continued its upward march, increasing to 4.5% in August. Goodness knows what the real rate is by the way.
Osborne and Clegg wittered on about the possibility of increasing the monetary stimulus (QE/Printing Money) to support the economy. Adam Posen, one of Merv's merry men, said the BoE should purchase as much as £100 billion in securities over the next three months. Currently the program stands at £200 billion.
Not one bit of any of this news is designed to give sterling any help at all.
Euro tottering?
All this of course is happening against the backdrop of the Euro under severe pressure of its own. Greece is teetering (different from tottering) on the brink of default, and no-one can really predict what the outcome of that would be, other than an almighty mess. Portugal, Spain, Ireland and Italy watch with interest, with maybe a touch of blind panic mixed in.
Some respite for the Euro came with a move by the central banks of the USA, UK, Japan and Switzerland, and also the ECB, to provide additional lending facilities, and this will help counter fears about the exposure of banks in the EU to eurozone sovereign debt. The debt problems had made the banks reluctant to lend and this in turn has created funding problems.
There was also further help for the Euro after European Commission President Jose Manuel Barroso said Euro bonds could be introduced. This would effectively share out Greece's (and other problem country's) debt, with sovereign bonds being replaced by pan-European bonds. Needless to say, The Germans aren't keen.
What next?
It is becoming increasingly obvious (even to me) that sterling is at present incapable of taking decisive advantage m the Euro's woeful position. With all the problems the Euro has, sterling should be looking down from the lofty heights of 1.50, not struggling to stay over 1.10 with occasional forays up to the 1.20 area. So for the time being we are going to have to get used to it. Unless the Euro falls over completely, these levels are going to be with us for some time yet.
It will be interesting this week to monitor the data due for release. In the eurozone, we get the first look at sentiment and activity surveys for September with the German ZEW (Centre for European Economic Research - work that one out) expectations index and eurozone PMIs due for release. All are expected to slip further, confirming once again that the European economy has lost considerable momentum since the beginning of the year. A poor set of numbers could further fuel talk that the ECB may be forced to reverse the rate hikes implemented earlier in the year. Markets will also be watching comments from the Merv's mate Clude Trichet who is due to speak on Friday.
In the UK, the highlight of the week will undoubtedly be Wednesday’s release of the minutes of the September BoE policy meeting.
Net result? 1.1375 for me. A bit boring really. We shall see...
Friday, September 9, 2011
F/X weekly comment
And proved wrong I certainly was!
As I write this sterling is sitting close to the dizzy heights of 1.1600 (OK, 1.1580). So what has caused all this merriment?
Same old sterling
Not a sterling show of strength, that's for sure. Interest rates were held again at 0.5%, which was such a racing certainty that you couldn't have got a price on it. UK PMI service sector figures showed the biggest fall in ten years, proof if needed that the UK economy is not responding as hoped. Indeed George Osborne was forced to admit in a speech this week that hope of an imminent economic recovery had been scaled back. All this keeps the markets eye on another potential tranche of QE (money printing), which is quite rightly negative for sterling.
However QE wasn't mentioned at all at the BoE meeting on Thursday, and the markets liked that, and it proved to be a spark that was followed by a very adjacent piece of blue touchpaper.
Euro reality
Amazingly, to my mind anyway, the ECB after meeting speech by Jean-Claude Trichet was factual, downbeat, and downright gloomy for the Euro. Perhaps he just wasn't up to applying gloss paint to rotten wood anymore. Trichet announced that no change would be made to the Euro rate, no surprise there, but then went on to highlight 'downside risks to economic growth in the Eurozone'.
This is remarkable not just because it is true, but because it is in effect an admission that the central bank were probably wildly optimistic in their timing when they started to raise Euro interest rates. If you remember, it was blindingly obvious at the time that sterling rates could not go up. The market has now decided that future rate rises have been pushed much further back in time, and some are even suggesting that the next rate movement for the Euro may be down.
During Thursday afternoon the rate moved from the low 1.1300s to over 1.15, and on Friday the onslaught continued and the Euro weakened further, in fact it has just made up those twenty points and is now at 1.16.
This week?
Aha, a note of caution is necessary here. Next week we have a whole raft of UK economic data, and precious little to come from the Eurozone. We will see UK data for house prices, inflation, unemployment and August retail sales. That is four chances to score an own goal, so I am pessimistic about our chances of keeping the momentum going. There is just a chance though that the Euro may be holed below the waterline.
On balance, I'd love to see sterling establish a base at 1.16 but somehow....
As I write this sterling is sitting close to the dizzy heights of 1.1600 (OK, 1.1580). So what has caused all this merriment?
Same old sterling
Not a sterling show of strength, that's for sure. Interest rates were held again at 0.5%, which was such a racing certainty that you couldn't have got a price on it. UK PMI service sector figures showed the biggest fall in ten years, proof if needed that the UK economy is not responding as hoped. Indeed George Osborne was forced to admit in a speech this week that hope of an imminent economic recovery had been scaled back. All this keeps the markets eye on another potential tranche of QE (money printing), which is quite rightly negative for sterling.
However QE wasn't mentioned at all at the BoE meeting on Thursday, and the markets liked that, and it proved to be a spark that was followed by a very adjacent piece of blue touchpaper.
Euro reality
Amazingly, to my mind anyway, the ECB after meeting speech by Jean-Claude Trichet was factual, downbeat, and downright gloomy for the Euro. Perhaps he just wasn't up to applying gloss paint to rotten wood anymore. Trichet announced that no change would be made to the Euro rate, no surprise there, but then went on to highlight 'downside risks to economic growth in the Eurozone'.
This is remarkable not just because it is true, but because it is in effect an admission that the central bank were probably wildly optimistic in their timing when they started to raise Euro interest rates. If you remember, it was blindingly obvious at the time that sterling rates could not go up. The market has now decided that future rate rises have been pushed much further back in time, and some are even suggesting that the next rate movement for the Euro may be down.
During Thursday afternoon the rate moved from the low 1.1300s to over 1.15, and on Friday the onslaught continued and the Euro weakened further, in fact it has just made up those twenty points and is now at 1.16.
This week?
Aha, a note of caution is necessary here. Next week we have a whole raft of UK economic data, and precious little to come from the Eurozone. We will see UK data for house prices, inflation, unemployment and August retail sales. That is four chances to score an own goal, so I am pessimistic about our chances of keeping the momentum going. There is just a chance though that the Euro may be holed below the waterline.
On balance, I'd love to see sterling establish a base at 1.16 but somehow....
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