Somehow it doesn't feel right not having to apologise for another wildly inaccurate forecast from the previous week. Maybe it's because I'm scared of missing the glory of (occasionally) getting it right. It might even have happened last week, as we have ended up virtually unchanged at just below the 1.1300 level. The equivalent of a 0-0 scoreline then, but there was plenty of action this week.
Greek Debt (again)
You might be forgiven for assuming that having in your midst a country where economic calamity has reduced its citizens to rioting in the streets against austerity measures might rock the boat somewhat in your desire for a stable joint currency. But no, the good ship Euro sails blithely on into the teeth of the approaching storm, and nothing is apparently happening to divert it. After a while, one begins to doubt whether the storm is actually there. What if all those dark clouds actually deliver is a few showers? I remain firmly in the tornado camp.
Pathetic Sterling
Harsh? No, I don't think so. The Euro really ought to be in deep trouble at the moment. If those Greek rioters get their way, it still might be, but what are Merv and his merry band of men doing? Sitting around discussing another dose of home grown inflation in the form of more QE, that's what. QE is a bit like giving a fat man the key to a chocolate factory and suggesting that it might make him a bit more likely to diet later.
More storms
The more of the current mess I see, the more I am becoming convinced that the Euro will not be around in its current form in 5 years time. Greece, Spain, Portugal and Ireland, maybe even Italy, are simply not in the same league as their more northern neighbours. I see a great need for a first and second division Euro, with the weaker members free to weaken their currencies and have some control over interest rates. If they the succeeded in pulling their economies round, they could be promoted back into the top tier.
Perhaps not the ideal subject for a weekly column, but I think I might revert back to the theme occasionally.
Where now?
This is where I see the sense in not making predictions, but here goes... I think Greece is still up there as a potential flashpoint for the next few weeks. They may have been voted a second bailout package, but the first have to accept the austerity measure, and somehow I don't think Stavros is all that keen. 1.14 and above for me by next week.
Friday, June 24, 2011
Friday, June 17, 2011
F/X Weekly Comment
Ah well, wrong again, but we're getting used to that, aren't we? Actually I wasn't too far away. As per Les Dawson, all the right notes were there, but not necessarily in the right order. Sterling pushed higher this week, nudging 1.1400, despite a rather nasty surprise earlier in the week. It then fell at the final fence and ended at 1.1300. Here's how it went.
UK Retail Sales
Down 1.6% in May. That's at least twice as bad as anyone expected. As a result, rather unsurprisingly, hopes of UK interest rate rises this year are disappearing down the tubes, whereas the Euro rate will apparently rise regardless of its other problems. Higher interest rates equals better return on deposits, so more people buy the currency. The more people buy something, the more expensive it gets, that's the law of supply and demand. If it's the Euro the currency markets are buying, not sterling, the Euro gets stronger and the pound weaker. You guessed it, the rate goes down. So why has it gone up?....
Greek Debt
To the rescue. Greece’s parliament must pass stringent spending cuts and undertake a widespread privatisation programme in order to receive its next tranche of bail-out funds from the IMF. and analysts feel that there is a higher chance of this happening if Greece has a clear leader in place. Rioters took to the streets in Athens on Thursday to protest against the proposed cuts and the yield on two year Greek bonds rose to an astronomical 28.6%. The Greek situation remains tense, to say the least. This is the king of the PIGS. Having been baled out once, they are still shipping water.
The Euro fell to its lowest since 2009 against a basket of currencies after support declined for the Greek Prime Minister. There were further divisions in the ECB and German official’s camps over the involvement of the private sector in resolving the crisis. The ECB and France want to avoid a declaration of default, while Germany wants private-sector involvement as the cost of continually asking their taxpayers to bail out Europe’s basket cases is causing political fallout.
The lack of a deal pushed bond yields of Greece to 17.9%, their highest level since the introduction of the euro in 1999, and Moody's placed France's top three banks on review for a possible downgrade, citing the banks' exposure to Greek debt.
Storm Clouds Gathering
It goes without saying that political developments from Greece will be the main driver of things this weekend. There are reports that the Finance Minister Papaconstantinou has been replaced but at present that is unconfirmed. There are also meetings between Angela Merkel and Nicolas Sarkozy in Berlin and of EU finance ministers on Sunday and Monday; there is a lot of risk out there and I don't think speculators will want to be holding euros at the moment.
Short term respite for sterling is possible then, but in the medium term I see more problems for sterling. These economic data indicators are not getting any better, and if the euro does shrug off Greece and start to raise rates aggressively, we could be in trouble.
I'm going to start keeping clear of weekly forecasts. I've said many times that it's a mugs game, and if you play that game for too long you start to look like one!
UK Retail Sales
Down 1.6% in May. That's at least twice as bad as anyone expected. As a result, rather unsurprisingly, hopes of UK interest rate rises this year are disappearing down the tubes, whereas the Euro rate will apparently rise regardless of its other problems. Higher interest rates equals better return on deposits, so more people buy the currency. The more people buy something, the more expensive it gets, that's the law of supply and demand. If it's the Euro the currency markets are buying, not sterling, the Euro gets stronger and the pound weaker. You guessed it, the rate goes down. So why has it gone up?....
Greek Debt
To the rescue. Greece’s parliament must pass stringent spending cuts and undertake a widespread privatisation programme in order to receive its next tranche of bail-out funds from the IMF. and analysts feel that there is a higher chance of this happening if Greece has a clear leader in place. Rioters took to the streets in Athens on Thursday to protest against the proposed cuts and the yield on two year Greek bonds rose to an astronomical 28.6%. The Greek situation remains tense, to say the least. This is the king of the PIGS. Having been baled out once, they are still shipping water.
The Euro fell to its lowest since 2009 against a basket of currencies after support declined for the Greek Prime Minister. There were further divisions in the ECB and German official’s camps over the involvement of the private sector in resolving the crisis. The ECB and France want to avoid a declaration of default, while Germany wants private-sector involvement as the cost of continually asking their taxpayers to bail out Europe’s basket cases is causing political fallout.
The lack of a deal pushed bond yields of Greece to 17.9%, their highest level since the introduction of the euro in 1999, and Moody's placed France's top three banks on review for a possible downgrade, citing the banks' exposure to Greek debt.
Storm Clouds Gathering
It goes without saying that political developments from Greece will be the main driver of things this weekend. There are reports that the Finance Minister Papaconstantinou has been replaced but at present that is unconfirmed. There are also meetings between Angela Merkel and Nicolas Sarkozy in Berlin and of EU finance ministers on Sunday and Monday; there is a lot of risk out there and I don't think speculators will want to be holding euros at the moment.
Short term respite for sterling is possible then, but in the medium term I see more problems for sterling. These economic data indicators are not getting any better, and if the euro does shrug off Greece and start to raise rates aggressively, we could be in trouble.
I'm going to start keeping clear of weekly forecasts. I've said many times that it's a mugs game, and if you play that game for too long you start to look like one!
Friday, June 10, 2011
F/X weekly comment
I've just noticed that I managed to get through all of my article last week without once mentioning the £/€ rate. This is obviously the way forward, for me anyway! I did in fact get the direction right this week, stabbing a guess at a rise from last week's levels, which were in fact in the low 1.12s. This afternoon (Friday the 10th) we have actually crept over 1.1300. Not a huge improvement, but every bit helps. How did we make this welcome step?
PPI
Last week we talked about PMI, this week we have PPI, which is the Producer Price Index, which measures inflation of input and output pricing. Following yesterday's rate decision (no change, in case you hadn't heard) , the UK released new inflation data which showed a decline to ease inflationary pressure concerns, yet inflation rates are expected to remain high for a while.
Today's data showed that UK annual PPI output for May reached 5.3%, the fastest since 2008, from the revised 5.5% and PPI input for the year ending May retreated to 15.7% from the revised 17.9%. Merv in his last open letter to George Osborne revealed that inflation will probably move between 4% and 5% over the coming few months to remain above target in 2011 before it comes back in 2012, clarifying that the rise in energy prices and the VAT along with the sterling's previous depreciation were the main reasons behind the rapid price acceleration.
Whilst none of this is particularly good, it wasn't as bad as many onlookers had feared, and we had a case of bad news bringing respite for the pound.
Interest Rates
Euro this time. As with sterling, the ECB kept euro rates on hold, but did indicate that they will probably rise in July. This was also expected, and as investors booked profits on the Euro (by selling their positions) it caused the £/€ rate to rise slightly.
Claude Trichet also signalled that further rate rises would come in the EU, but perhaps not as fast as some analysts were expecting. This reduction in future rate hike expectations also helped slightly to push the pound higher.
Where now?
Without something big to push the markets either way, sterling will continue to bounce around at these levels. There does seem to be something brewing about a second Greek bailout, but I don't expect anything for a few weeks yet. 1.1250 for me next week.
PPI
Last week we talked about PMI, this week we have PPI, which is the Producer Price Index, which measures inflation of input and output pricing. Following yesterday's rate decision (no change, in case you hadn't heard) , the UK released new inflation data which showed a decline to ease inflationary pressure concerns, yet inflation rates are expected to remain high for a while.
Today's data showed that UK annual PPI output for May reached 5.3%, the fastest since 2008, from the revised 5.5% and PPI input for the year ending May retreated to 15.7% from the revised 17.9%. Merv in his last open letter to George Osborne revealed that inflation will probably move between 4% and 5% over the coming few months to remain above target in 2011 before it comes back in 2012, clarifying that the rise in energy prices and the VAT along with the sterling's previous depreciation were the main reasons behind the rapid price acceleration.
Whilst none of this is particularly good, it wasn't as bad as many onlookers had feared, and we had a case of bad news bringing respite for the pound.
Interest Rates
Euro this time. As with sterling, the ECB kept euro rates on hold, but did indicate that they will probably rise in July. This was also expected, and as investors booked profits on the Euro (by selling their positions) it caused the £/€ rate to rise slightly.
Claude Trichet also signalled that further rate rises would come in the EU, but perhaps not as fast as some analysts were expecting. This reduction in future rate hike expectations also helped slightly to push the pound higher.
Where now?
Without something big to push the markets either way, sterling will continue to bounce around at these levels. There does seem to be something brewing about a second Greek bailout, but I don't expect anything for a few weeks yet. 1.1250 for me next week.
Friday, June 3, 2011
F/X weekly comment
As predicted last week, sterling went down. Yes, I know I said I thought sterling should go up, but I definitely said this means it will probably go down, and down it went. Not down the plughole yet, but definitely swirling in that direction. 400 points in a single week is a very poor performance indeed. So how did it happen?
UK PMI
2 doses of very nasty medicine. PMI stands for Purchasing Managers Index, and we have them for different sectors of the economy. This week we had figures for manufacturing and for services sectors. Purchasing managers are tasked with gauging future demand, and adjusting orders for materials accordingly. The PMI summarizes the opinions of these executives to give a picture of the future of the sector. A higher PMI indicates that materials purchases are increasing and that the economic outlook is positive. Alternately, a lower PMI means orders for materials are down and the future outlook is less favourable. By nature, the figure is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole.
The services sector PMI fell to 53.8 in May, down from 54.3 in April. The service sector is by far the biggest economic sector in the UK and the fall was blamed partly on the overlap of bank holidays and partly because of subdued consumer demand.
Earlier in the week the PMI index for the manufacturing sector fell to its lowest level for 20 months. Separate data released by the Office for National Statistics (ONS) showed that construction orders fell by 23 per cent from the previous quarter and down by 18 per cent compared with the same period the previous year.
Euro
Despite all the factors listed in last week's article, and especially as eurozone debt concerns continue, the ECB’s willingness to raise interest rates is seen as positive for further increases, with the region’s largest economy Germany backing the resolution of the debt crisis and many investors taking that as a cue to support the single currency further. Eurozone inflation continues to rise, an indication to many that the Euro may benefit from further rate increases as opposed to the flat sentiment over rates coming from the Merv and his merry men.
So where from here? I have no shame at all in suggesting that you may as well toss a coin this week. I for one do not have a clue where it's going to end up this time next week. If I had to make a guess, it would be slightly higher than here, just on the yoyo effect of the markets.
UK PMI
2 doses of very nasty medicine. PMI stands for Purchasing Managers Index, and we have them for different sectors of the economy. This week we had figures for manufacturing and for services sectors. Purchasing managers are tasked with gauging future demand, and adjusting orders for materials accordingly. The PMI summarizes the opinions of these executives to give a picture of the future of the sector. A higher PMI indicates that materials purchases are increasing and that the economic outlook is positive. Alternately, a lower PMI means orders for materials are down and the future outlook is less favourable. By nature, the figure is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole.
The services sector PMI fell to 53.8 in May, down from 54.3 in April. The service sector is by far the biggest economic sector in the UK and the fall was blamed partly on the overlap of bank holidays and partly because of subdued consumer demand.
Earlier in the week the PMI index for the manufacturing sector fell to its lowest level for 20 months. Separate data released by the Office for National Statistics (ONS) showed that construction orders fell by 23 per cent from the previous quarter and down by 18 per cent compared with the same period the previous year.
Euro
Despite all the factors listed in last week's article, and especially as eurozone debt concerns continue, the ECB’s willingness to raise interest rates is seen as positive for further increases, with the region’s largest economy Germany backing the resolution of the debt crisis and many investors taking that as a cue to support the single currency further. Eurozone inflation continues to rise, an indication to many that the Euro may benefit from further rate increases as opposed to the flat sentiment over rates coming from the Merv and his merry men.
So where from here? I have no shame at all in suggesting that you may as well toss a coin this week. I for one do not have a clue where it's going to end up this time next week. If I had to make a guess, it would be slightly higher than here, just on the yoyo effect of the markets.
Friday, May 27, 2011
F/X weekly comment
I'm going to upset the applecart well and truly this week, and return to a 'bullish' stance on sterling. For the happily uninitiated, this means I think the pound is going to go up. The bad news is that this probably means it will go down, but it just seems to me that most of the merde flying around in the currency markets at the moment seems to be sticking to the Euro.
Sweet 16
For a few hours on Thursday we actually saw sterling trading in the 1.16's for the first time since the 14th March. There is a lot of Far-East interest in buying the Euro when it's cheap at the moment, and that had the effect of bringing the rate down again into the mid 1.15's, but sterling still feels buoyant, and it wouldn't surprise me at all if the financial press over the weekend were to be anti-Euro.
Some sterling news
First quarter UK GDP was confirmed at up 0.5%, which was important, as any lower revision would have been very bad news indeed. As it was, it kept sterling firm, and even allowed it to ride the potential storm of the threat of downgrading for a host of UK banks and building societies. I tend to think of this as rating agencies trying to flex their muscles, when in fact they have already proved that they are a very weak link in the financial chain.
Euro news
Nearly all of it bad. Epitomised by one Mr Juncker. Jean-Claude Juncker is the head of the Eurogroup, a clutch of EU finance ministers. Known to some as 'Mr Euro' or perhaps 'Herr Euro', he put the skids under his pet project by stating that the IMF may be unwilling to pay the next tranche of the bailout package to Greece. Who knows, maybe paying the bailout money for DSK has drained the coffers? That sent sterling crashing through the 1.16 level, as mentioned earlier. Not because sterling was particularly strong of course, but because the Euro was weakened.
Isn't that old news though? Maybe, but the fact is that the bad news is starting to stack up for the Euro. Look at this list:
Italy put on downgrade watch by S&P (more muscle flexing by wimps, but still bad news.
Anti government protests over unemployment and economy in Spain.
Belgium has had no government for nearly a year, and may split.
Angela Merkel’s Christian Democrats lose control of Baden-Wurttemburg for the first time since 1953.
IMF to move away from European control after DSK caught with his trousers down?
Portugal could be heading down Belgian lines as political crisis grows.
Makes the UK political and economic scene look positively benign, doesn't it? It may take a few weeks, but we might even start to edge up towards 1.20 again.
Now there's there kiss of death for you...
Sweet 16
For a few hours on Thursday we actually saw sterling trading in the 1.16's for the first time since the 14th March. There is a lot of Far-East interest in buying the Euro when it's cheap at the moment, and that had the effect of bringing the rate down again into the mid 1.15's, but sterling still feels buoyant, and it wouldn't surprise me at all if the financial press over the weekend were to be anti-Euro.
Some sterling news
First quarter UK GDP was confirmed at up 0.5%, which was important, as any lower revision would have been very bad news indeed. As it was, it kept sterling firm, and even allowed it to ride the potential storm of the threat of downgrading for a host of UK banks and building societies. I tend to think of this as rating agencies trying to flex their muscles, when in fact they have already proved that they are a very weak link in the financial chain.
Euro news
Nearly all of it bad. Epitomised by one Mr Juncker. Jean-Claude Juncker is the head of the Eurogroup, a clutch of EU finance ministers. Known to some as 'Mr Euro' or perhaps 'Herr Euro', he put the skids under his pet project by stating that the IMF may be unwilling to pay the next tranche of the bailout package to Greece. Who knows, maybe paying the bailout money for DSK has drained the coffers? That sent sterling crashing through the 1.16 level, as mentioned earlier. Not because sterling was particularly strong of course, but because the Euro was weakened.
Isn't that old news though? Maybe, but the fact is that the bad news is starting to stack up for the Euro. Look at this list:
Italy put on downgrade watch by S&P (more muscle flexing by wimps, but still bad news.
Anti government protests over unemployment and economy in Spain.
Belgium has had no government for nearly a year, and may split.
Angela Merkel’s Christian Democrats lose control of Baden-Wurttemburg for the first time since 1953.
IMF to move away from European control after DSK caught with his trousers down?
Portugal could be heading down Belgian lines as political crisis grows.
Makes the UK political and economic scene look positively benign, doesn't it? It may take a few weeks, but we might even start to edge up towards 1.20 again.
Now there's there kiss of death for you...
Saturday, May 14, 2011
Weekly F/X Comment
Sterling and the Euro slugged it out all week, and sterling survived to end the week marginally higher than close of business last Friday at 1.1461, which of course confounded my theory that we would end up looking at the 1.12 level again for the time being. My main concern last week was the quarterly inflation report to be issued on Wednesday, but in fact this provided a boost for sterling:
Inflation fears rise in UK
Sterling was boosted on Wednesday as the B of E Inflation Report showed more worries than expected on the horizon on the inflation front. This resurrected ideas of an early interest rate hike, and sterling surged ahead against the Euro. The common currency soon fought back however, with more news on the Greek front.
Greece angst
The Euro lost ground to nearly every trading counterparty early in the week with more doubts surfacing over Portugal, and especially Greece. The banking systems are the main worry, with fears that the perhaps unknown depth of the Greek problem could throw the whole Euro banking system into turmoil. Sterling of course benefitted from this, especially with the boost of the inflation report to help it.
Another rabbit
One exasperating thing about the Euro is its ability to ‘pull rabbits out of the hat’ when up against the proverbial wall. There are so many things to take into consideration when you have a multitude of countries sharing the same currency. It is easy to focus on a problem in one area, without necessarily appreciating the necessary sense of scale required to take on beard news from other areas. Just when the doubters are focussing on Greece, the ECB will pull out a great set of growth figures for France and Germany. Add to that some decent figures for corporate growth in th Eurozone as a whole, and throw in the odd comment about future Euro rate rises, and all of a sudden the Euro looks far less of a basket case than it did ten minutes earlier.
Manipulation?
Far be it from me to suggest any great plot at work here. I’m not suggesting anything of the kind. What I am saying is that there are times when currency flows will be guided not by facts, but by structured presentation of those facts. What gets said and when is critical to currency movement in the short term. Over a longer period of time fundamental issues take control, but in the short term forecasting remains, as I am a prime example, a mugs game.
I don’t think sterling has much scope for growth in the current circumstances, so I’m sticking with my return to the 1,12s for now. I’m just not sure how quickly it will happen.
Inflation fears rise in UK
Sterling was boosted on Wednesday as the B of E Inflation Report showed more worries than expected on the horizon on the inflation front. This resurrected ideas of an early interest rate hike, and sterling surged ahead against the Euro. The common currency soon fought back however, with more news on the Greek front.
Greece angst
The Euro lost ground to nearly every trading counterparty early in the week with more doubts surfacing over Portugal, and especially Greece. The banking systems are the main worry, with fears that the perhaps unknown depth of the Greek problem could throw the whole Euro banking system into turmoil. Sterling of course benefitted from this, especially with the boost of the inflation report to help it.
Another rabbit
One exasperating thing about the Euro is its ability to ‘pull rabbits out of the hat’ when up against the proverbial wall. There are so many things to take into consideration when you have a multitude of countries sharing the same currency. It is easy to focus on a problem in one area, without necessarily appreciating the necessary sense of scale required to take on beard news from other areas. Just when the doubters are focussing on Greece, the ECB will pull out a great set of growth figures for France and Germany. Add to that some decent figures for corporate growth in th Eurozone as a whole, and throw in the odd comment about future Euro rate rises, and all of a sudden the Euro looks far less of a basket case than it did ten minutes earlier.
Manipulation?
Far be it from me to suggest any great plot at work here. I’m not suggesting anything of the kind. What I am saying is that there are times when currency flows will be guided not by facts, but by structured presentation of those facts. What gets said and when is critical to currency movement in the short term. Over a longer period of time fundamental issues take control, but in the short term forecasting remains, as I am a prime example, a mugs game.
I don’t think sterling has much scope for growth in the current circumstances, so I’m sticking with my return to the 1,12s for now. I’m just not sure how quickly it will happen.
Saturday, May 7, 2011
F/X weekly comment
Normal service is resumed this week, with my forecast of sterling down in the 1.12s meeting up with the reality of the pound ending the week at 1.1430! A nice way to be wrong though, unless you are heading back to the UK, but I think the majority, me included, like to see as high a rate as possible. Not only was I wrong in where we ended up, but the pound actually plumbed some severe depths during the week, hitting 1.1045 at one point. Then we had a 3.5% swing between Wednesday afternoon and Friday evening.
A game of two halves - Monday to Wednesday
Same old story for the pound. Data released on Tuesday showed that the UK's manufacturing sector grew at its weakest pace for seven months in April. This data reduced even more the likelihood of an interest rate rise later in the week. Coupled with the likelihood of a series of Euro rate hikes this summer, it is not exactly surprising that the pound headed south at a fair lick, and at one point looked like it might collapse below the 1.10 level.
Second half fightback - Wednesday to Friday
I don't think anyone saw this coming. Certainly not me anyway.
On Thursday both the BoE (Merve and his mates) and the ECB left interest rates on hold as expected. What rocked the boat was the comments from the ECB president, Jean Claude Trichet. He adopted a much softer stance on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to take profits on the Euro's gains versus sterling earlier in the week. That started the ball rolling.
On Friday morning the markets were eagerly awaiting the UK PPI (Producer Price Index) data, looking for a poor figure to send the pound back down to levels seen earlier in the week. In the event, the PPI figures were much better than expected. Still down, but down by nowhere near as much as the market had anticipated. Thus the expected move down soon turned into a further surge for the pound.
In addition to all of this, there was an important piece of corporate news going on in the background. Glencore, a huge multinational commodities company, was to launch shares on the UK stock market. If you want those shares, you need to have sterling. What happens if sterling is in demand? The rate goes up.
All good fun, but where do we go from here? Being a naturally cautious person, I'm inclined to think that this is unlikely to be the start of the great sterling revival, but I would love to be proved wrong. I back sterling's ability to shoot itself in the foot at any opportunity, and there is every opportunity next week, the Merve's quarterly inflation report.
I hate to say it, but I think the markets will sell sterling, and we could be down towards 1.12 levels again soon.
A game of two halves - Monday to Wednesday
Same old story for the pound. Data released on Tuesday showed that the UK's manufacturing sector grew at its weakest pace for seven months in April. This data reduced even more the likelihood of an interest rate rise later in the week. Coupled with the likelihood of a series of Euro rate hikes this summer, it is not exactly surprising that the pound headed south at a fair lick, and at one point looked like it might collapse below the 1.10 level.
Second half fightback - Wednesday to Friday
I don't think anyone saw this coming. Certainly not me anyway.
On Thursday both the BoE (Merve and his mates) and the ECB left interest rates on hold as expected. What rocked the boat was the comments from the ECB president, Jean Claude Trichet. He adopted a much softer stance on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to take profits on the Euro's gains versus sterling earlier in the week. That started the ball rolling.
On Friday morning the markets were eagerly awaiting the UK PPI (Producer Price Index) data, looking for a poor figure to send the pound back down to levels seen earlier in the week. In the event, the PPI figures were much better than expected. Still down, but down by nowhere near as much as the market had anticipated. Thus the expected move down soon turned into a further surge for the pound.
In addition to all of this, there was an important piece of corporate news going on in the background. Glencore, a huge multinational commodities company, was to launch shares on the UK stock market. If you want those shares, you need to have sterling. What happens if sterling is in demand? The rate goes up.
All good fun, but where do we go from here? Being a naturally cautious person, I'm inclined to think that this is unlikely to be the start of the great sterling revival, but I would love to be proved wrong. I back sterling's ability to shoot itself in the foot at any opportunity, and there is every opportunity next week, the Merve's quarterly inflation report.
I hate to say it, but I think the markets will sell sterling, and we could be down towards 1.12 levels again soon.
Saturday, April 30, 2011
F/X weekly comment
Not that I'm shouting about it, but have you noticed (Richard) that my forecast has been spot on for two consecutive weeks now? That just about doubles my success rate for the year. Sterling had a day off from its woes on Friday. Something to do with the Sovereign taking a day off for a wedding, but earlier in the week there was some action.
Growth, of sorts
The UK GDP figures came out this week for the first quarter of 2011. The 0.5% increase makes up for the poor 4th quarter but to all intents and purposes means that the UK has not grown at all in the past 6 months. The figures showed a rebound in transport since the destruction caused by the winter snow while services and manufacturing and services have remained buoyant. The main problem remains construction, a historically volatile aspect. Mortgage approvals published at the same time as the GDP release show a rise for the 3rd consecutive month.
The pound rose quite sharply after these figures. It seems that there was a lot of market expectation of even worse figures, so positions had to be reversed. This strength didn't last long though.
Same old Euro
The Euro is starting to remind me of a gritty Mexican lightweight boxer around in the eighties. I can't even remember his name, but he always impressed me in the way that he never knew the meaning of defeat. No matter how badly a fight was going, he simply wouldn't give up. I think he retired unbeaten. Either that or he was beaten senseless due to going up too far in the weights.
The Euro has a similar sort of charmed life at the moment. No matter how bad the PIGS problem becomes, or looks like developing into, it hangs in there and keeps on taking the punches and coming back for more. After a while you have to be impressed by that.
Within a day of the sterling show of strength after the figures, the Euro had taken back all the lost ground, and here we are back below 1.13 again. It may have had something to do with Yves Mersch, an ECB board member, speaking publicly about the likelihood of the central bank reigning in their asset purchase scheme in the near future, an action which would see further support for the Euro.
Either way, I can't see much changing in the coming weeks, so I think we will still be in the 1.12s this time next week.
Growth, of sorts
The UK GDP figures came out this week for the first quarter of 2011. The 0.5% increase makes up for the poor 4th quarter but to all intents and purposes means that the UK has not grown at all in the past 6 months. The figures showed a rebound in transport since the destruction caused by the winter snow while services and manufacturing and services have remained buoyant. The main problem remains construction, a historically volatile aspect. Mortgage approvals published at the same time as the GDP release show a rise for the 3rd consecutive month.
The pound rose quite sharply after these figures. It seems that there was a lot of market expectation of even worse figures, so positions had to be reversed. This strength didn't last long though.
Same old Euro
The Euro is starting to remind me of a gritty Mexican lightweight boxer around in the eighties. I can't even remember his name, but he always impressed me in the way that he never knew the meaning of defeat. No matter how badly a fight was going, he simply wouldn't give up. I think he retired unbeaten. Either that or he was beaten senseless due to going up too far in the weights.
The Euro has a similar sort of charmed life at the moment. No matter how bad the PIGS problem becomes, or looks like developing into, it hangs in there and keeps on taking the punches and coming back for more. After a while you have to be impressed by that.
Within a day of the sterling show of strength after the figures, the Euro had taken back all the lost ground, and here we are back below 1.13 again. It may have had something to do with Yves Mersch, an ECB board member, speaking publicly about the likelihood of the central bank reigning in their asset purchase scheme in the near future, an action which would see further support for the Euro.
Either way, I can't see much changing in the coming weeks, so I think we will still be in the 1.12s this time next week.
Saturday, April 23, 2011
F/X weekly comment
Another respectable result on the forecasting front, with sterling spending most of the week languishing in the 1.12s. We started at just over 1.13, and that's where we've ended up, but it didn't take long for sterling weakness to surface:
Minutes
The minutes from the last MPC (no, that doesn't stand for Merv's pathetic crew) showed that none of the six members to vote against an interest rate rise at March’s meeting had changed camps to vote for a rate hike at this month‘s meeting. The devil hidden in the detail of the minutes caused further selling pressure on the sterling, as apparently there were discussions leading to a statement that a rise in interest rates in the near-term would "adversely affect consumer confidence, leading to an exaggerated impact on spending". The market unsurprisingly pushed back their expected date for a rate hike accordingly.
Sales
Figures released on Thursday showed that UK retail sales rose unexpectedly in March, helped by stronger food sales. The ONS (Office for National Statistics) said retail sales volumes including fuel rose 0.2 percent last month, against forecasts of a 0.5 percent fall. Overall though this does little to alter a picture of fragile consumer demand that is deterring the MPC from raising rates. Other figures showed government borrowed slightly lower than forecast in the 2010/11 fiscal year, but this is not expected to change the coalitions view of the necessity to continue with stringent public spending cuts.
Euronews
The Euro's strength this week was helped by a strong Spanish bond auction which is helping Spain's cause in their quest to be divorced from the PIGS. And to be fair, they are the only one of the four not to have received a bailout so far. Spreads in Greece, Ireland and Portugal continued to widen, probably because of lingering worries of a possible early Greek debt restructuring. It does seem though as if the Euro is starting to shrug off these concerns, and if there are no more scares over the weekend, we could see further strength from the Euro against the pound.
For that reason, I'm afraid I see more despondency for sterling over the coming week, and I'll be surprised if we hang on to the 1.13 level.
Minutes
The minutes from the last MPC (no, that doesn't stand for Merv's pathetic crew) showed that none of the six members to vote against an interest rate rise at March’s meeting had changed camps to vote for a rate hike at this month‘s meeting. The devil hidden in the detail of the minutes caused further selling pressure on the sterling, as apparently there were discussions leading to a statement that a rise in interest rates in the near-term would "adversely affect consumer confidence, leading to an exaggerated impact on spending". The market unsurprisingly pushed back their expected date for a rate hike accordingly.
Sales
Figures released on Thursday showed that UK retail sales rose unexpectedly in March, helped by stronger food sales. The ONS (Office for National Statistics) said retail sales volumes including fuel rose 0.2 percent last month, against forecasts of a 0.5 percent fall. Overall though this does little to alter a picture of fragile consumer demand that is deterring the MPC from raising rates. Other figures showed government borrowed slightly lower than forecast in the 2010/11 fiscal year, but this is not expected to change the coalitions view of the necessity to continue with stringent public spending cuts.
Euronews
The Euro's strength this week was helped by a strong Spanish bond auction which is helping Spain's cause in their quest to be divorced from the PIGS. And to be fair, they are the only one of the four not to have received a bailout so far. Spreads in Greece, Ireland and Portugal continued to widen, probably because of lingering worries of a possible early Greek debt restructuring. It does seem though as if the Euro is starting to shrug off these concerns, and if there are no more scares over the weekend, we could see further strength from the Euro against the pound.
For that reason, I'm afraid I see more despondency for sterling over the coming week, and I'll be surprised if we hang on to the 1.13 level.
Saturday, April 16, 2011
Weekly F/X comment
Things are improving. No with sterling of course, but with my forecasting record. We did indeed dip into the 1.12s during the week, but in the end managed to claw back to just over 1.13 after a bit of a wobble from the Euro.
What's a Grecian Urn?
Not enough to pay his debts, obviously. (sorry Eric) Greek borrowing costs peaked at new record levels yesterday. Greek and German finance ministers have discussed the possibility that Greece may need more time to attract investors and debt restructuring is on the cards. There is a theory that Greece’s debt levels are unsustainable, if they are then ‘further measures’ could be taken.
Paddypowerless
At the moment the euro is still strong from the possibility of another interest rate hike, but has weakened since the sterling lows during the week. This weakness has come partly from noise from Irish Government about ‘structured default’, and partly to the contents of the ECB report which showed that an interest rate hike was warranted, but warned of the higher risk of price stability. On top of that Moody’s downgraded Ireland’s sovereign rating to just above junk.
The term 'structured default', in case you couldn't guess, means welching on your debt. Doing a 'runner' in effect. The Irish may have no choice, as may the Greeks. The only reason we're not talking about Portugal doing it is that they haven't worked out what their debt is yet.
Sterling stuff
The UK Consumer Price Index figures released this week showed a fall in inflation for the first time in 8 months. A fall in food and soft drink prices was the main cause. Lower inflation means that initial expectations of a rate hike in the UK have now been pushed back even further, and November is now being touted as a likely date. This news weakened sterling and at one point it reached one year low against the Euro.
A survey also showed the biggest drop in retail sales in nearly 6 years, highlighting the problems facing the UK as the government's tough austerity measures hit home.
So yet again we have the situation where there is no discernible currency strength to talk about, only relative strength borne of real weaknesses in both camps. Somehow though I think that the Euro's long term problems are greater than sterling's. that allows me to hold on to my belief that we will eventually see rates settle in the mid 20s, but maybe not for some considerable time yet. Short term movement is, as I know only too well, very difficult to predict, but I can see sterling weakening more next week, and I think we will be back in the 1.12 range.
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