F/X weekly comment

Well this is about as exciting as watching paint dry. Here we are at the end of this week at 1.2000, a mere 40 points away from where we finished last week, and the week before, and exactly the same as the week before that. I looked at one website today that was clearly trying to drum up some interest for its foreign exchange business by showing a choppy chart for sterling Euro over the week. It was only by looking at the axes that you could see that the high was 1.2008 and the low 1.1975. When I were but a lad you'd expect to see that sort of movement while you had a cup of coffee and your first fag of the day. Remember smoking in offices? You had to join in or it would make you feel ill. Not that we had Euros in those days though. Real currencies for me, deutschmarks and francs; lire and pesetas; escudos and drachma.

There was however quite a bit of action in the background this week, even if it didn't filter through into market movement:


Poor UK data

No, surely not? Aren't we supposed to be bursting out of recession into the blossoming spring of recovery? Not according to GfK NOP (whoever they may be), who announced that we consumers suffered a lapse in confidence in March as we became more worried about the financial outlook and the economy in general. The index decreased two points to -31 from -29 in February, according to the survey. It is the lowest since reading since December (not exactly a long timescale there) and contradicted expectations of a small improvement. On a longer timescale, it is three points lower than a year ago, which may well help to wipe any smug grins off faces at the BoE.
We also heard that mortgage approvals fell during the month, and money supply for February registered its biggest monthly fall ever (impressive huh?). This was followed by poor figures in the services sector and to round it all off UK house prices had their sharpest drop in over 2 years.
Well not exactly rounding it all off, because the OECD then stuck the boot in when they calculated that the UK economy shrank in the first three months of the year, which means, dear friends, that we are back into a recession. Let's hope they're wrong on that one.
So how the hell did sterling shrug all this off and end the week 30 points higher than last week? Surely we should be hanging on to our parachutes for dear life as we plummet down towards parity?

Greece is the word

Standard & Poors commented that Stavros and friends may need yet further fiscal re-structuring in order to eventually get itself out of the mire. The Greek Tragedy has dropped out of the headlines over the past couple of weeks, thanks to the confirmation that it would be receiving the €130bn second bail-out. Strange that it should take so long for anyone to draw this obvious conclusion, but who am I to comment?

But...

Could it have been the Greek appetizer for a Spanish main course? Spain is in deep trouble. There are 5.4 million unemployed people in Spain, 23.3% of the workforce. Youth unemployment is at almost 50%. The new government forecasts another 600,000 unemployed Spaniards by the end of 2012. 430,000 Spanish families are to be evicted from their homes by 2016 if Spanish banks and courts keep up the current rate of mortgage foreclosures. The latest austerity budget is cutting nearly €30bn rom public spending this year alone. The general strike on Thursday is not going to create more jobs for the millions of unemployed Spaniards who are deeply despondent about the inability of modern Spain’s economic and political system to offer them and their children a proper future.



What now?


For now I'll stick again to last week's forecast of 1.2125. I'm beginning to get a sense that the balance is swinging against the Euro. It used to be that whatever was good in the UK couldn't manage to boost the pound. Now it seems that continuing bad news seems unable to damage it. Blind faith it might be, but it's worth a go!.

F/X weekly comment

Still waiting for that move through to 1.2125. The budget came and went this week and George Osborne emerged unscathed, if accused of being a grannie-mugger. We've ended up, or rather down, at 1.1960, which is a bit disappointing really. And it could all have been so different:


The best laid plans

Negative numbers were the order of the week, with a very weak set of German PMI figures, which suggested that the eurozone’s leading economy is beginning to struggle in response to pan European debt worries. Problems for the Euro were reinforced by Irish growth figures which showed that the Republic’s economy had contracted by 0.2% in the three months to the end of December 2011. That set the scene for a fun Friday. If the Italian Retails Sales numbers showed that the country’s self-imposed austerity measures are beginning to weigh down the country’s economy, then a weaker the Euro would be the result, sending the pound back toward its 18-month high of 1.2168.


Go astray

So it came as no surprise to me when Italian retail sales rose in January contrary to market expectations, and despite a struggling economy and increasingly tight fiscal policy. Retail sales rose 0.7% from December in seasonally-adjusted terms, led by a 1.2% monthly jump in food purchases.

Economists had expected Italian retail sales to be flat in January after falling in November and December. The jump in January's retail sales was the strongest in at least two years and may signal pent-up demand, especially as the shops offered steep post-Christmas discounts this year. If I had been a jobbing F/X trader looking to boost my weekly P&L on the back of this scenario, I'd have been having a quiet weep by now.

Just to rub salt into the wound, French business confidence in manufacturing also rose in March. The index increased to 96 in March from 93 in February, as the outlook of business leaders improved. A figure of 93 had been expected. An overall sentiment reading, including construction, retail, services, and wholesale, also rose in March to 95 from 91 in February, just to put the boot in.

Nearer to home

The underlying reason for the fall back into the 1.19's was our old friend Merv and his MPC cronies. The latest policy minutes showed that committee members Posen and Miles pushed for more QE to help stimulate the economy. Most sane observers in the market had expected a unanimous vote for asset purchases to be left on hold following the February decision to increase the scheme by 50 billion pounds to 325 billion. This of course put sterling under pressure.

On the same day The Office for Budget Responsibility's forecasts for growth and borrowing detailed by Osborne were marginally more optimistic than the previous estimates, but the earlier release of much higher-than-expected public sector borrowing for February pulled the pound down. Any future deterioration in the borrowing figures may well mean that ratings agencies Fitch and Moody's will downgrade the UK's AAA sovereign debt status, another potential source of weakness for pound. Ho hum....




What now?


I'll stick again to last week's forecast of 1.2125. Not that I have any real idea where we're going to be next week. Call it blind faith.

F/X weekly comment

Still waiting for the move through to 1.2125, and with the budget this week it could be a case of sh*t or bust. Can Osborne navigate axing the 50% tax rate and still keep his austerity flag flying? We ended the week at 1.2030, which is quite reassuring in view of the almost relentless tendency to crash off the 1.20 level whenever we get a look at it. No earth-shattering news this week, but there were a few items of note:


Potential downgrade

Our good friends the rating agencies were at it again, trying to justify their existence. This time it was Fitch , deciding to lower the UK’s long-term outlook to negative from stable, while confirming our AAA rating for the time being. I sometimes wonder who takes any notice of these self-serving leeches.

Real data

The pound has been aided this week by a recent improvement in UK economic data including retail sales and a narrowing of the trade gap reducing the chance of a second recession and further QE by Merv and his gang. Sterling has also been supported against the Euro by a recent widening in the difference between short-term UK and German bond yields, creating an appetite for sterling in long term f/x dealing.

Unemployment

UK unemployment rose by 28,000 to 2.67 million during the three months to January, putting the unemployment rate at 8.4%, according to figures from the Office for National Statistics. Despite these high figures, the rise was the lowest in almost a year. They were actually lower than forecast, and the slowing rise is good news for the pound, which gained following the release.

A quick word about Greece

I know I said I was getting bored with talking about Greece, but an article I read today has pulled me up short. Austerity measures are one thing, and Greeks may have been living in a fiscal cloud cuckoo land for centuries, but they didn't create this mess, Europe did. Greece could have carried on quite happily in its own romantic dream if it hadn't been seduced into the euro under false pretences. Now it faces a 40% reduction in the healthcare budget this year alone, on top of tax hikes and wage cuts. New cases of all kinds of horrible diseases of all kinds are escalating at a truly alarming rate. Greece cannot take this. It is teetering on the verge of collapse and social disintegration. Greece will not be alone in this suffering.


What now?


I'll stick again to last week's forecast of 1.2125. Not that I have any faith in George Osborne, but I do have faith in sterling.

F/X weekly comment

Wrong again, but hey, get used to it. I have. My forecast last week of 1.2125 now looks a tad optimistic, as we are finishing the week at 1.1970, just 30 points shy of last week's close. It was quite an interesting week though, albeit driven once again by vultures circling high above the Parthenon.

Greek debt - cheap or expensive?

Both actually. Cheap if you're looking to buy it (are you mad?) or very expensive if you already own it. Central to this week's activity has been the attitude of the owners of Greek government bonds. These are promises made by the Greek government to repay debt at set rates at a set time; promises now rather difficult to keep, as the Greek government has run out of money. In order to stand any chance of being able to repay the second bailout, and in fact to sand any chance of being paid the second bailout, they had to persuade the bondholders to 'write off' over half of the money, and accept replacement bonds to repaid further in the future at lower rates. Why would anyone in their right mind vote to accept that deal? Because if they didn't, Greece would collapse into disorderly default on the bonds. In other words, settle for 25% of what you are owed or run a very large risk of getting nothing at all.

And I quote:

Nicolas Sarkozy, renowned sage and Euro leading light (snigger): 'I would like to say how happy I am that a solution to the Greek crisis, which has weighed on the economic and financial situation in Europe and the world for months, has been found.'

Greek Finance Minister Evangelos Venizelos: 'I believe everyone will soon realise that this is the only way to keep the country on its feet and give it a second historic chance that it needs'

Jacob Kirkegaardof the Peterson Institute for International Economics: 'More to protect Europe from Greece than for Greece itself'


Sarkozy is clearly otherwise engaged in planning his retirement from politics. Venizelos is clearly a dedicated optimist. Kirkegaardof lives in the real world. Europe is merely buying time with this charade. The time will be used by European governments and banks to strengthen their financial defences, leaving them less vulnerable when the Greek day of reckoning eventually arrives.


What now?

Greece will go away for now, until the wallpaper starts to show the cracks again. That will leave the field clear for a week or so to let economic data rule the roost for a change. That's as long as Spain or Portugal don't rise to the top of the agenda just yet. UK figures are looking promising. Some of the 'green shoots of recovery' are starting to appear, while in Europe things are still looking messy. Sterling interest rates will stay the same, but the Euro may have to bring rates down, as they started to rise much too early.

All of this is positive for sterling, so as long as Merv doesn't put the boot in, we should be able to have another good run at the 1.20's.

I'll stick to last week's forecast of 1.2125. Let's face it, if I keep that going long enough, it must be right one week, mustn't it?

F/X weekly comment

It's been a low-key week on the F/X markets, and yet sterling has managed to creep up on the blind side and has yet again inched past the 1.20 level. That makes my forecast for last week plainly wrong, so what happened to make the pound exceed my expectations?


To print or not to print, that is the question

To which no-one really seems yet to have an answer. In essence, Merv back-tracked on the subject. He said on Wednesday the BOE will be guided by upcoming data when deciding whether to issue more QE. It had been widely anticipated that another £25bn would need to be printed in the next few months, but it appears that the latest data has cast doubt on these expectations.

On the other side of the Channel, Europe doesn't do QE, or at least says it doesn't. What it does do however is make vast sums of cheap money available to the banking system from time to time, as it did this week. Now you or I would be hard pressed to spot the difference between this and QE, but the markets know a ringer when they see one, and this week's actions have weakened the Euro just as much as they have strengthened sterling.


Back to basics - data, data and more data

Some decent UK figures and some dodgy Euro ones didn't do us any harm at all during the week. Thursday's manufacturing data edged down slightly to 51.2 from 51.8 but held above the key 50 level that divides expansion from contraction. Friday's construction index was very pleasing, coming in at 54.3 against forecasts of 51.3 thus showing expansion in an important area of UK economic activity. A view is starting to emerge that the economy is recovering (say it in hushed tones) and if this is the case it will of course help sterling rally.

German retail sales figures out on Friday showed an unexpected drop as price rises start to hit the consumer. A better figure had been expected s a result of a lowering of tension surrounding the Euro zone debt crisis. Thursdays manufacturing PMI from Germany stayed in positive territory, but wasn't anything to shout about. The Euro has certainly not shaken off doubts as to the peripheral economies, indeed fears for the Greek bailout are bubbling under the surface again.


Gissa job

Eurozone employment data showed that unemployment in the region rose to its highest level in the Euro's history in January, to touch a scary 10.7%. It is beginning to look as though pan European austerity measures are bringing an unwelcome side effect on growth and jobs across the whole economic area.


What now?

Can this be seventh time lucky? Can Greece stay out of the headlines for two weeks running? Will Merv be able to resist pulling the plug on sterling yet again? Maybe, just maybe, I'm going for 1.2125 next week. Fingers crossed!

F/X weekly comment

So I get to pay out on the evens bet last week. Shame, but no real surprise. Nice to be right two weeks running though. There were some familiar factors involved:


Sixth time unlucky

Last week I pointed out that this was the sixth time that Sterling has poked its head up above the 1.20 level in the past three years, and of course on each of the previous five occasions it fell back, sometimes sharply. And here we are again, back at 1.1800.


Greece to the rescue

An unlikely headline, at best, but that in effect is what happened for the Euro last week. The Greek government took it upon themselves to sign away even more of the ordinary Greek-in-the-street's ability to cope on a day to day basis. To be fair, the alternative is even less attractive in substance, even though it might be difficult to persuade the public of that fact. To rub salt in the wound, the EU, IMF and ECB also demanded, and got, a monitoring post in Athens so that they can keep an eye on things. Well I for one hope that the building they choose isn't too flammable, and I wouldn't be too happy if I were a German accountant given the Athens posting. ECB president Mario Draghi chipped in, saying that 'backtracking on fiscal targets would elicit an immediate reaction by the market'. Go Mario.


Under Sentance of Debt

Actually I can spell, usually. This is Andrew Sentance, who until last year was one of Merv's Merry Men. His gloomy forecast this week was that the UK will continue to struggle with poor growth and sporadic phases of recovery until at least 2016. He anticipates annual growth of 1% or less per year until then.


MMM

Talking of Merv and his crew, they also managed to contribute to sterling's relapse this week, with the release of the last Bank of England minutes to the decision two weeks ago to keep interest rates on hold. During that meeting the decision was taken to issue another £50bn of QE, and that was taken favourably by the market at the time. In the minutes it was revealed that two members of the committee wanted even more money pumped into the economy than the £50bn. The two voted for a £75bn slab of QE, but the other seven went for £50bn. The reason this has caused a problem for sterling is that the market had assumed that the decision would have been unanimous, and that recent good economic data would mean that we could put the printer away now. It now appears however that the door is still open for even more QE in the future, and this has helped weaken sterling as increasing the amount of currency in the system must inevitably devalue it.


So what now?

Doldrums time again for a while I'm afraid, until we either get more clear signals on the UK economy, or Greece kicks off again, as it surely will. I firmly believe that we will see 1.200 again soon, and sometime soon we're going to breach that level and stay there, but not just yet. Mid 1.1800's for me this week.

F/X Weekly Comment

Whew! Got one right last week. I was beginning to forget what that felt like, but here we are, as predicted, back in the 1.20s, in fact at 1.2050 at close of play on Friday. Greece was again a factor, but to be honest I'm getting a bit bored of the attention being heaped on by far the smallest of the PIIG economies. Press and pundits seem less bored though, and determined to keep it in the news, so:


More Greek Woes

The euro was again under the cosh this week as the market concentrated on the news regarding the second Greek bailout. Deadlines came and went throughout the week, and a meeting scheduled for European finance chiefs on Wednesday, during which the deal was to have been finalised, was postponed until Monday due to German (and others) concerns that the Greek’s proposed austerity package didn't come with the required guarantee that the measures would actually be pushed through. A case of 'talk is expensive'. Ominously for Greece, a statement was also issued saying that 'further considerations are necessary'.


Moody Blues for Europe

No, not another comeback tour, but another ratings agency 'strutting its stuff'. This week Moody’s cut the debt ratings of six European countries including Italy, Spain and Portugal whilst placing France, Austria and ,oh yes, the UK on a negative outlook. They did however leave the European Financial Stability Facility’s AAA rating alone. (Why?)


Meanwhile Back 'Home'

The market had the unusual task of assimilating some good news for Sterling. The CBI came out with a bullish statement forecasting that the UK will avoid a double dip recession and that the recovery will gain momentum during the year. This was presumably based partly on the release of better than anticipated UK Retail Sales data for January. The annualised figure was posted at +2.0% versus expectations of a growth in shop sales of only 0.6%, raising investor’s expectations that the Bank of England will have to raise British interest rates sooner rather than later. Strange really, as only on Tuesday the headlines were that the sterling base rate would remain unchanged for at least two more years! The pound was also benefitting from the fact that only £50bn (only?) was issued last week instead of £75bn.


What now?

Well, this is now the sixth time that Sterling has poked its head up above the 1.20 level in the past three years, and of course on each of the previous five occasions it fell back, sometimes sharply. Last time though it only fell back into the 1.18's, and then only for a short time. Can this be sixth time lucky?

Bored of new from Greece I might be, but it will be Greek news that dictates which way Sterling goes from here. If a deal is reached on Monday, and Greece's gonads are wrung even tighter, the chances are that the Euro will strengthen and the rate will fall back again. If however, and this is possible, the Greek politicians decide that if they give any more ground it will be their gonads on the line, not the public's, we could have a very messy week indeed.

On balance, I think a deal will be struck. As the Dutch PM said this week 'It's cheaper to bail Greece out than to let it default'. I can see what he means, but Greece will default, by any reasonable description, whatever happens. The choice is between orderly default, with debtors agreeing to write off debt, and disorderly default, where the Greeks just decide they can't repay.

So I'll give you two prices this week, with betting odds:

1.2450 by next Friday 8/1
1.1825 by next Friday Evens

You can tell I've been to Monaco, can't you?

F/X weekly comment

Not a vast amount to report this week in terms of currency movement. We've ended up a centime down on the week at 1.1950. To me this feels a bit like a lull before a big storm. Interest rates in both the UK and Euroland were kept on hold again, but the BoE came in with a new slug of QE, more on that below. The big story though, not for the first time this year:

Greece is still the word...

Caught between a rock and a hard place, it's difficult not to feel some degree of sympathy for the Greeks this week. No? OK, it is difficult. They desperately need more EU money, but first they've got to prove that they will make at least some attempt to pay (a bit) of it back, and they're struggling. They thought they'd come up with a decent new austerity package this week, but those stern nasty Germans weren't impressed, and they were sent packing to drum up some more riot-fodder. As I write this, on Friday evening (10th Feb), a headline has just burst onto my computer screen:

Marilisa Xenogiannakopoulou

I wouldn't bother even trying to annunciate it, and no it's not the Greek version of countdown, it is in fact the name of the fourth Greek government minister to resign today in protest over the debt negotiations. Yes, today. Giving a flavour of current sentiment, George Karatzaferis, a coalition party leader said, "Greece must not and cannot be outside the EU. But it can do without the German boot." Unfortunately the German boot is in fairly close proximity to the German hand that is shelling out most of the money.


Back in Blighty...

Some decent figures out this week, and an expected old friend reared his head in the form of another tranche of QE (Money printing to you and me). Now the theory goes that QE doesn't mean higher inflation, but personally I'll take more convincing than I've seen so far. Another £50bn chucked into the system this week would have hurt sterling even more, but the market was quite relieved that it wasn't the £75 bn that they'd been expecting.


More on Greece...

Update Sunday pm. The austerity cuts include under discussion now include:
• Another 15,000 public-sector job cuts
• liberalisation of labour laws (hire and fire)
• lowering the minimum wage by 20% from 751 euros a month to 600 euros
These were presented to a eurozone ministers in Brussels, but were rejected unless a further €325m in savings for this year are promised, and the Greek leaders give "strong political assurances" on the implementation of all of the packages. Unions are holding a 48-hour strike, and thousands of protesters are rallied in central Athens against the measures. Riot police are on standby. Watch this space.


What now?


Back to guesswork in the short term, so back into the 1.200s next week for me...

F/X weekly comment

Two weeks on from my last blog on the single currency duel with sterling. Two weeks on, and precious little has changed, in fact the rate has moved by just 10 centimes, ending this week at 1.2050. A bit like my two weeks really, here I am in exactly the same place, but in the intervening period I found myself mixing with it the high-rollers in Monte Carlo. I didn't make my fortune though, and like sterling I'm back down at square one, if you can call it that (what would you call 1.05 then?). So what will change things from here?

The continuing story of Greece....

More like a soap really. How long can this drag on for? We were promised that a full resolution to the Greek debt problem would be in place by, let me see, which date shall we choose? Anyway, the latest promise is Monday. Dream on. Apparently there will be announcements on three issues. Firstly, the size of the haircut that private investors must take on their holdings (in addition to what hit the ECB will take). Secondly, the size of yet another bailout (MK111), which is going to have to be somewhere in the region of €130bn, and lastly another tranche of austerity measures announced by the Greek government for the Greek public to welcome with open arms.

A sideshow from Portugal...

Another fairly dismal round of bond refinancing during the week reminded the markets that Greece isn't where all the action is. In fact there is fun to be had wherever you look in southern Europe, if you like that sort of thing.

Can the UK and sterling capitalise on all of this?

Do bears defecate in Milton Keynes? Is the pope a Mormon? No, of course not. The latest apology for sterling is of course that we need the EU debt problem resolved quickly and positively in order to reassure the markets that the UK economy will not suffer. Lord preserve us from procrastinating apologists disguised as economists. Are we to believe that sterling is now inextricably tied in to a range between 1.0500 and 1.2050 against the lumbering school bully that is the Euro?

What now?

Maybe I should go and lie down for a while. Maybe then I'll wake up and the world will have come to its senses. Newt Gingrich will be US President, Greece will be the only currency left in the Euro, and there will be DM4 to the pound (and FF13). Gazole will be 20 cents a litre, but no-one will use it as cars run on air..

And why is this room all padded?

Still 1.200s next week folks.

F/X weekly comment

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

Not so fast...

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

But on the other hand...

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

One out...

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

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

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

Short term?

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