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!
Friday, February 25, 2011
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
Saturday, December 18, 2010
Weekly F/X comment
Oh dear, wrong again! Mugs game this forecasting lark. Sterling having flattered to deceive last week, I was duly deceived, and this week we got what I expected last week. Timing, that's what it's all about... his week I really do think that we will see very little from the currency markets. Yesterday (the 17th) was 'black Friday' in the City of London and big cities throughout the UK. Very little to do with the markets, but it was office party day, and a good number of market participants, in the UK at least, will now be more than a tad jaded in the final push to Christmas.
Look back and wonder..
Can you guess the range for sterling/euro in 2010? It is 1.09 to 1.24, so that leaves us just in the top half of the table at 1.1780 this week. That's quite a big range, and it's worth pointing out that if you needed to buy euros to pay for a €250,000 house this year, the swing between those two rates is over €30,000. Nice if you got it right...
The early rounds
As the year draws to a close I think it would be useful to try to work out the current state of play between the two currencies. Let's take sterling first. The dear old pound has taken a battering over the past three years, and at times it has looked as though the ref ought to step in and end the bout, but it's still there. It has paid heavily for its 'special relationship' with the US financial markets. Mortgage backed securities? No problem my septic friend. Who cares whether or not the borrower will be able to repay when interest rates go up? They're all mixed in with some good stuff, aren't they? Well yes they were , but not enough good stuff to soak up the mess, and the world's financial system was left staring down both barrels of a very sawn off shotgun.
Of course the euro was caught up in all this mess as well, but not to anywhere near the same extent. We all know what a pain it is to get a decent mortgage in France, and it's been like that for years. So many years in fact that if you told a French mortgage lender that you could get a loan of eight times joint salary in the UK, he would assume you were either joking or lying. This caution didn't do France, and the other eurozone countries, any harm at all when things started to get a little 'difficult'. Yes, the European banks lost a few billion here and there, certainly more than they could afford, but there were no Northern Rock or RBS debacles. So the early rounds post 2007 went to the euro, and sterling very nearly went down the pan.
A swing?
Having failed to put sterling on the canvas and out for the count, it is probably no surprise that things started to go wrong for the euro. The pre-fight pundits had always claimed that the euro had a weak chin. Having sixteen very different countries using the same currency and the same interest rate just isn't natural. Fine if they all became one country (Europa?), but that was never going to happen. Each of those countries has a different economic cycle, and governments need to tweak and trim their economic capabilities by moving interest rates up or down, or buying or selling their currency. So what happens when you can't do that anymore? You farm PIGS, that's what happens. Greece gleefully accepts billion upon billion of development aid, and it seeps down through fakelaki into all the wrong back pockets. Ireland suddenly realises that it has mortgage rates at 3%. Begorrah, I can buy a huge house very cheaply, if I can find a bank that will lend me the money. And so it goes, until one day the bills drop on the doorstep, and the PIGS can't pay.
Round 7
So here we are, the pretty girls dressed in skimpy santa outfits have left the ring and the bell has gone. The euro has staggered through the last two rounds, rocked by a desperate lunge by sterling which caught that dodgy chin. We now have two desperately tired contenders, and there are six rounds left. This could go either way
Sterling is still hurting from the financial crisis, and will need to conserve energy (and cash) to get through this match. The euro is also hurting badly. Apart from a bruised chin, it might have a couple of broken ribs.
If they both hang in there for the full 12 round, I think it will be a draw, and we will become used to exchange rates floating gently between 1.25 and 1.30. The biggest worry is that the euro might not make it, and be forced to throw in the towel. In that case sterling will be the winner, but at what cost?
Time for a Christmas break. Here's wishing anyone daft enough to read this stuff (and thank you) a marvelous Christmas and New Year, and I'll be back in 2011 to let you know how round 7 is going.
a bientot, Rob
Look back and wonder..
Can you guess the range for sterling/euro in 2010? It is 1.09 to 1.24, so that leaves us just in the top half of the table at 1.1780 this week. That's quite a big range, and it's worth pointing out that if you needed to buy euros to pay for a €250,000 house this year, the swing between those two rates is over €30,000. Nice if you got it right...
The early rounds
As the year draws to a close I think it would be useful to try to work out the current state of play between the two currencies. Let's take sterling first. The dear old pound has taken a battering over the past three years, and at times it has looked as though the ref ought to step in and end the bout, but it's still there. It has paid heavily for its 'special relationship' with the US financial markets. Mortgage backed securities? No problem my septic friend. Who cares whether or not the borrower will be able to repay when interest rates go up? They're all mixed in with some good stuff, aren't they? Well yes they were , but not enough good stuff to soak up the mess, and the world's financial system was left staring down both barrels of a very sawn off shotgun.
Of course the euro was caught up in all this mess as well, but not to anywhere near the same extent. We all know what a pain it is to get a decent mortgage in France, and it's been like that for years. So many years in fact that if you told a French mortgage lender that you could get a loan of eight times joint salary in the UK, he would assume you were either joking or lying. This caution didn't do France, and the other eurozone countries, any harm at all when things started to get a little 'difficult'. Yes, the European banks lost a few billion here and there, certainly more than they could afford, but there were no Northern Rock or RBS debacles. So the early rounds post 2007 went to the euro, and sterling very nearly went down the pan.
A swing?
Having failed to put sterling on the canvas and out for the count, it is probably no surprise that things started to go wrong for the euro. The pre-fight pundits had always claimed that the euro had a weak chin. Having sixteen very different countries using the same currency and the same interest rate just isn't natural. Fine if they all became one country (Europa?), but that was never going to happen. Each of those countries has a different economic cycle, and governments need to tweak and trim their economic capabilities by moving interest rates up or down, or buying or selling their currency. So what happens when you can't do that anymore? You farm PIGS, that's what happens. Greece gleefully accepts billion upon billion of development aid, and it seeps down through fakelaki into all the wrong back pockets. Ireland suddenly realises that it has mortgage rates at 3%. Begorrah, I can buy a huge house very cheaply, if I can find a bank that will lend me the money. And so it goes, until one day the bills drop on the doorstep, and the PIGS can't pay.
Round 7
So here we are, the pretty girls dressed in skimpy santa outfits have left the ring and the bell has gone. The euro has staggered through the last two rounds, rocked by a desperate lunge by sterling which caught that dodgy chin. We now have two desperately tired contenders, and there are six rounds left. This could go either way
Sterling is still hurting from the financial crisis, and will need to conserve energy (and cash) to get through this match. The euro is also hurting badly. Apart from a bruised chin, it might have a couple of broken ribs.
If they both hang in there for the full 12 round, I think it will be a draw, and we will become used to exchange rates floating gently between 1.25 and 1.30. The biggest worry is that the euro might not make it, and be forced to throw in the towel. In that case sterling will be the winner, but at what cost?
Time for a Christmas break. Here's wishing anyone daft enough to read this stuff (and thank you) a marvelous Christmas and New Year, and I'll be back in 2011 to let you know how round 7 is going.
a bientot, Rob
Saturday, December 11, 2010
Weekly F/X comment
Perhaps the less said about my forecast last week the better. 1.1675 doesn't look much like 1.1950 whichever way you look at it, so what did I get wrong? Euro weakness is the answer, and lots of it. Strife in the Euro camp. This week, Germany rejected a proposal from Luxembourg and Italy that a large chunk of euro zone sovereign debt finance should be replaced with collective Eurobonds, and the Luxembourg prime minister accused Ms. Merkel of being "un-European".
So what's wrong with good old-fashioned Eurobonds?
Germany has now rejected the idea twice. On Monday Germany's finance minister said it was unworkable on technical grounds, because the European treaties would not allow it. On Wednesday, Angela Merkel, the German chancellor, gave the real reason; that a collective Eurobond would provide the wrong incentives, allowing weak states to hide behind the strong. She believes that member states need the financial discipline of the bond markets and separate interest rates. Now to my mind that is indeed pretty un-European. I thought the idea was for a single pan-European interest rate? Apparently not if it means that Germany has to pay more than it needs to in the process.
End game?
It strikes me the eurozone's politicians will have to face the hard question next year of whether to help states such as Ireland engineer a managed default and exit from the euro or make concerted efforts to bring the eurozone into a tighter political and fiscal union and thereby facilitate economic transfers from strong states to the weak. The practical prospect of this happening seems somewhat remote, but without it we could now be looking at the start of the end game for the euro.
A chartist's view
One of my promises when I started writing these articles was that I would avoid technical mumbo-jumbo and chart-speak, so I will choose my words carefully here. Below we have a chart which shows the turbulent history of sterling against the euro over the past 5 years, or to be more precise the past 3 1/2 years. As you can see all was well in the world until half way through 2007, then we lost nearly 10% in the second half of that year. In 2008 the merde really hit the ventilateur, and we lost another 22%. Since then however we have seen a recovery of sorts in both 2009 and 2010. Here comes the technical bit.
Take a look at this link: http://markets.investorschronicle.co.uk/companies/summary.asp?YYY2070_05il4cW/O8fDu6TjdxyEB1/lYp2aAGZomAsCpdYn/Rg=
Look at the four troughs (lowest points) from December 2008 through to now, and mentally (or actually if you like) draw a line linking them all and carrying on into the future, that line will be going 'uphill'. Real chartists out there will be choking on their coffee at this point, but I'm not talking to them. This is called a trendline, and if the chart does indeed carry on in this way sterling will be back above 1.3000 sometime in 2012.
Now I know for a fact that Barclays have lots of chartists, and the bank seems to be listening to them. The bank`s long-term forecast is for sterling to reach €1.28 by this time next year. Barclays view is that “The Coalition is enacting deep structural reform in order to take a lump out of the deficit, which is a risk…It could ultimately be good for the structural growth story in the UK.” Yes, well, maybe and maybe not. I have my own view on the Osborne austerity package, but that's for another day.
A note of caution regarding charts and chartists. What do you think the chartist view was in September 2008, just before sterling fell over the cliff?
So what now?
I have been forced to re-think my entire view of sterling's likely performance pre-Christmas. Somewhat reluctantly I think we may now indeed see an assault on the 1.200 level, so let's go for 1.2025 by the end of next week.
a bientot, Rob
www.France-Financial.com
www.Spectrum-IFA.com
Phone 0468 247758 or 0631 787647
Please note that all these comments are my personal view and do not represent any firm advice by either France Financial or the Spectrum IFA Group.
The Spectrum IFA Group - TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 - www.orias.fr« Conseiller en investissements financiers, référencé sous le numéro F000184 par CIF-CGPC, association agréée par l’Autorité des Marchés Financiers »
So what's wrong with good old-fashioned Eurobonds?
Germany has now rejected the idea twice. On Monday Germany's finance minister said it was unworkable on technical grounds, because the European treaties would not allow it. On Wednesday, Angela Merkel, the German chancellor, gave the real reason; that a collective Eurobond would provide the wrong incentives, allowing weak states to hide behind the strong. She believes that member states need the financial discipline of the bond markets and separate interest rates. Now to my mind that is indeed pretty un-European. I thought the idea was for a single pan-European interest rate? Apparently not if it means that Germany has to pay more than it needs to in the process.
End game?
It strikes me the eurozone's politicians will have to face the hard question next year of whether to help states such as Ireland engineer a managed default and exit from the euro or make concerted efforts to bring the eurozone into a tighter political and fiscal union and thereby facilitate economic transfers from strong states to the weak. The practical prospect of this happening seems somewhat remote, but without it we could now be looking at the start of the end game for the euro.
A chartist's view
One of my promises when I started writing these articles was that I would avoid technical mumbo-jumbo and chart-speak, so I will choose my words carefully here. Below we have a chart which shows the turbulent history of sterling against the euro over the past 5 years, or to be more precise the past 3 1/2 years. As you can see all was well in the world until half way through 2007, then we lost nearly 10% in the second half of that year. In 2008 the merde really hit the ventilateur, and we lost another 22%. Since then however we have seen a recovery of sorts in both 2009 and 2010. Here comes the technical bit.
Take a look at this link: http://markets.investorschronicle.co.uk/companies/summary.asp?YYY2070_05il4cW/O8fDu6TjdxyEB1/lYp2aAGZomAsCpdYn/Rg=
Look at the four troughs (lowest points) from December 2008 through to now, and mentally (or actually if you like) draw a line linking them all and carrying on into the future, that line will be going 'uphill'. Real chartists out there will be choking on their coffee at this point, but I'm not talking to them. This is called a trendline, and if the chart does indeed carry on in this way sterling will be back above 1.3000 sometime in 2012.
Now I know for a fact that Barclays have lots of chartists, and the bank seems to be listening to them. The bank`s long-term forecast is for sterling to reach €1.28 by this time next year. Barclays view is that “The Coalition is enacting deep structural reform in order to take a lump out of the deficit, which is a risk…It could ultimately be good for the structural growth story in the UK.” Yes, well, maybe and maybe not. I have my own view on the Osborne austerity package, but that's for another day.
A note of caution regarding charts and chartists. What do you think the chartist view was in September 2008, just before sterling fell over the cliff?
So what now?
I have been forced to re-think my entire view of sterling's likely performance pre-Christmas. Somewhat reluctantly I think we may now indeed see an assault on the 1.200 level, so let's go for 1.2025 by the end of next week.
a bientot, Rob
www.France-Financial.com
www.Spectrum-IFA.com
Phone 0468 247758 or 0631 787647
Please note that all these comments are my personal view and do not represent any firm advice by either France Financial or the Spectrum IFA Group.
The Spectrum IFA Group - TSG Insurance Services S.A.R.L. Siège Social: 34 Bd des Italiens, 75009
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 - www.orias.fr« Conseiller en investissements financiers, référencé sous le numéro F000184 par CIF-CGPC, association agréée par l’Autorité des Marchés Financiers »
Saturday, December 4, 2010
Weekly F/X Comment
Now that's more like it. I think I'll give myself 8 out of 10 for last week's predictions, which was that sterling would end up at between 1.1750 and 1.1800 and the actual result is... 1.1750! If you think I'm being a bit mean on that score, I ought to point out that a heck of a lot went on during the week that I hadn't anticipated, and at one point we were over 1.1900 and looking strong. I do however feel particularly pleased that I managed to push through a large customer investment deal at over 1.1800 on Wednesday. Shame I didn't do some for myself.
A big week for England
England? Surely I mean Great Britain, or the UK? No, I mean England, and the scandalous vote for the World Cup venues in 2018 and 2022, with the decisions going to Russia and Qatar. I can only assume that there is an air-conditioning contractor somewhere who is very pleased with his FIFA order of multiple giant reversible Clim domes to supply warm air in 2018 and cool air in 2022. I put this vote well up there as a principal reason for sterling's reversal late this week.
Well actually I don't, but I just wanted to have a moan anyway.
Back to the PIGS
No silly porcine frivolity this week, but there is no escaping the fact that sterling/euro movement is still being driven by fear (or the lack of it) of contagion amongst the peripheral eurozone countries. The euro survived a tough week, and came out fighting. At one point fears that Ireland's problems would engulf Portugal and Spain looked as if they would push the euro into a downward spiral. The ECB held interest rates at 1% as expected, but the markets had been looking to governor Trichet to announce strong measures to calm market nerves, but he didn't, and that was when we saw rates over 1.1900 briefly.
Eventually however, the ECB swung into action. A threatened market rout forced the central bank into a new wave of bond purchases. As a direct result the extra yield that investors demand to hold Portuguese 10 year bonds over German bunds fell below 300 basis points (that's 3%) for the first time since August. Ireland’s 10 year yield plunged 30 basis points to 8.2 percent yesterday and the Spanish yield, which hit 5.67 percent on Nov. 30, closed at 5.1 percent. Lots of figures there but I think you can see that the effect was to take pressure off the debt covering charges suffered by the peripheral countries.
The latest round of the crisis is forcing leaders once more to assert their support for the euro. Angela Merkel, the European Paymaster-General, said: “The German government stands behind the euro “It is fighting for a stable euro and will do everything within its power” to push other EU countries toward embracing a “culture of stability” in their public finances.
Options that the EU leaders may consider if the crisis were to worsen include boosting their 750 billion euro temporary rescue fund or turning it into an asset-buying program; cutting the interest rate charged on bailout loans such as the Irish package, or issuing joint bonds for the all the euro nations. Against this potential onslaught, sterling has continued weak domestic statistics and a VAT rise to hit demand from January onwards. Not much in the way of ammunition really.
So what now?
As we approach Christmas interest in the FX markets will wane. After all, there are an awful lot of Christmas parties to fit into the month, and also it is bonus negotiation time, so no-one wants to lose any money. I think sterling's push for 1.200 has fizzled out for this year. If you really need to buy euros, I'd do it sooner rather than later. But remember, it's just my guess! 1.1675 for me next week.
a bientot, Rob
A big week for England
England? Surely I mean Great Britain, or the UK? No, I mean England, and the scandalous vote for the World Cup venues in 2018 and 2022, with the decisions going to Russia and Qatar. I can only assume that there is an air-conditioning contractor somewhere who is very pleased with his FIFA order of multiple giant reversible Clim domes to supply warm air in 2018 and cool air in 2022. I put this vote well up there as a principal reason for sterling's reversal late this week.
Well actually I don't, but I just wanted to have a moan anyway.
Back to the PIGS
No silly porcine frivolity this week, but there is no escaping the fact that sterling/euro movement is still being driven by fear (or the lack of it) of contagion amongst the peripheral eurozone countries. The euro survived a tough week, and came out fighting. At one point fears that Ireland's problems would engulf Portugal and Spain looked as if they would push the euro into a downward spiral. The ECB held interest rates at 1% as expected, but the markets had been looking to governor Trichet to announce strong measures to calm market nerves, but he didn't, and that was when we saw rates over 1.1900 briefly.
Eventually however, the ECB swung into action. A threatened market rout forced the central bank into a new wave of bond purchases. As a direct result the extra yield that investors demand to hold Portuguese 10 year bonds over German bunds fell below 300 basis points (that's 3%) for the first time since August. Ireland’s 10 year yield plunged 30 basis points to 8.2 percent yesterday and the Spanish yield, which hit 5.67 percent on Nov. 30, closed at 5.1 percent. Lots of figures there but I think you can see that the effect was to take pressure off the debt covering charges suffered by the peripheral countries.
The latest round of the crisis is forcing leaders once more to assert their support for the euro. Angela Merkel, the European Paymaster-General, said: “The German government stands behind the euro “It is fighting for a stable euro and will do everything within its power” to push other EU countries toward embracing a “culture of stability” in their public finances.
Options that the EU leaders may consider if the crisis were to worsen include boosting their 750 billion euro temporary rescue fund or turning it into an asset-buying program; cutting the interest rate charged on bailout loans such as the Irish package, or issuing joint bonds for the all the euro nations. Against this potential onslaught, sterling has continued weak domestic statistics and a VAT rise to hit demand from January onwards. Not much in the way of ammunition really.
So what now?
As we approach Christmas interest in the FX markets will wane. After all, there are an awful lot of Christmas parties to fit into the month, and also it is bonus negotiation time, so no-one wants to lose any money. I think sterling's push for 1.200 has fizzled out for this year. If you really need to buy euros, I'd do it sooner rather than later. But remember, it's just my guess! 1.1675 for me next week.
a bientot, Rob
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