It’s all about the Euro UK inflation set to rise - Biro at the ready Mr King
Tuesday, 16 February 2010
FX Market Overview
Absent traders in the Far East and America left the markets to meander in existing ranges throughout Monday. The Pound barely broke a sweat throughout the day and the Euro which had been hammered in the latter part of last week, maintained a far more sober air. However, poor high street data from the UK showed that the Christmas rush came to a shuddering halt in January and that stopped the Pound from capitalising on gains made last week.
Traders are still keeping their powder dry for Wednesday’s Bank of England minutes and most are anticipating pretty poor UK data for the rest of the week. I read reports yesterday that suggested the Pound was likely to get to EUR 1.20 and that the Euro-US Dollar exchange had another 6 cents to fall before the worst is over but I am more cautious than that. After a week of being battered by one negative story after the other, I cannot imagine any more poor news for the Euro other than a decision by the EU to abandon Greece to its own fate. That’s about as likely as an apology from Tony Blair so don’t hold your breath. It also struck me that the analysts and commentators suggesting this continuation in the decline of the Euro were the ones trumpeting $2.20 when the US dollar reached the magic two dollars to a Pound and the same ones who changed that forecast in a split second when the Pound fell back below $2.00.
In essence, it is easy to get your name in the newspaper and grab a bit of publicity for your bank or financial institution if you are prepared to talk in extreme terms. A commentator who speaks of the middle ground is rarely published. So be wary of these doomsayers and fortune tellers.
Now cross my palm with silver and I’ll tell you what I think. Tall dark strangers will come and they will look upon the mess that Greece is in and they will say, we bringeth our friends the International Monetary Fund who will oversee your redemption. And they will offer loan guarantees to ensure the Greeks have cash to keep the economy rolling and that will be the start of a recovery in not only the Greek economy but also the Euro. EUR 1.1650 is the current top level in the Sterling - Euro exchange rate and EUR 1.1240 is the bottom. Until we see a break through either end of this range, any further gains or losses are pure speculation and that is certainly not a basis upon which you should plan your business or investment plans.
The problem is that yesterday brought fresh allegations that the Greek authorities used a sequence of complex derivatives trades in the early 2000s to mask the scale of their indebtedness and other countries in the EU are pressing for Greece to take far more severe measures to get their house in order before any cash will be put on the table. What! A government cooking the books to hide bad news! I can’t believe any country would do such a thing. It would be like....oh I don’t know..... shifting a load of unemployed people onto a benefit with a different name to compress the unemployment rate.....or something equally deceitful. The fear is that if the EU starts looking too closely at Greece’s misdemeanours, they may uncover all the other slights of hand that kept other EU countries within shouting distance of the EU rules for the last decade.
But enough of the Euro; the overnight news was that the Reserve Bank of Australia released the minutes from their last meeting and we had confirmation of what we already thought; that the RBA board knew they would cause some ructions in the financial markets by pausing their interest rate hiking cycle but felt they had to wait to assess the effects of the past three hikes before moving again. They did warn that further hikes should not be ruled out if inflation picked up but that is standard fare for central bankers.
Today’s big news is the UK inflation data. Most analysts are forecasting a push above 3.0 percent and the necessity for the Governor of the Bank of England to write to the Chancellor to apologise for being lax in controlling inflation. This is pretty well priced into the stubborn Pound so we ought only to expect a drop in the value of Sterling if the inflation rate is below 2.9 percent. We will also get the economics expectation index from the German ZEW institute. This is well respected as a leading indicator but given the recent drop in German economic growth and the poor industrial production data last month; this has the makings of a poor result, maintaining the pressure on the Euro.
And then, other than a smattering of minor US releases, no less than three Federal Reserve Presidents speaking at various points throughout the afternoon and that is that. So have a lovely Shrove Tuesday, my advice is to go ahead and flip those pancakes, then wipe up that mess on the floor and ceiling and enjoy the second one which is generally cooked far less flamboyantly.
Traders are still keeping their powder dry for Wednesday’s Bank of England minutes and most are anticipating pretty poor UK data for the rest of the week. I read reports yesterday that suggested the Pound was likely to get to EUR 1.20 and that the Euro-US Dollar exchange had another 6 cents to fall before the worst is over but I am more cautious than that. After a week of being battered by one negative story after the other, I cannot imagine any more poor news for the Euro other than a decision by the EU to abandon Greece to its own fate. That’s about as likely as an apology from Tony Blair so don’t hold your breath. It also struck me that the analysts and commentators suggesting this continuation in the decline of the Euro were the ones trumpeting $2.20 when the US dollar reached the magic two dollars to a Pound and the same ones who changed that forecast in a split second when the Pound fell back below $2.00.
In essence, it is easy to get your name in the newspaper and grab a bit of publicity for your bank or financial institution if you are prepared to talk in extreme terms. A commentator who speaks of the middle ground is rarely published. So be wary of these doomsayers and fortune tellers.
Now cross my palm with silver and I’ll tell you what I think. Tall dark strangers will come and they will look upon the mess that Greece is in and they will say, we bringeth our friends the International Monetary Fund who will oversee your redemption. And they will offer loan guarantees to ensure the Greeks have cash to keep the economy rolling and that will be the start of a recovery in not only the Greek economy but also the Euro. EUR 1.1650 is the current top level in the Sterling - Euro exchange rate and EUR 1.1240 is the bottom. Until we see a break through either end of this range, any further gains or losses are pure speculation and that is certainly not a basis upon which you should plan your business or investment plans.
The problem is that yesterday brought fresh allegations that the Greek authorities used a sequence of complex derivatives trades in the early 2000s to mask the scale of their indebtedness and other countries in the EU are pressing for Greece to take far more severe measures to get their house in order before any cash will be put on the table. What! A government cooking the books to hide bad news! I can’t believe any country would do such a thing. It would be like....oh I don’t know..... shifting a load of unemployed people onto a benefit with a different name to compress the unemployment rate.....or something equally deceitful. The fear is that if the EU starts looking too closely at Greece’s misdemeanours, they may uncover all the other slights of hand that kept other EU countries within shouting distance of the EU rules for the last decade.
But enough of the Euro; the overnight news was that the Reserve Bank of Australia released the minutes from their last meeting and we had confirmation of what we already thought; that the RBA board knew they would cause some ructions in the financial markets by pausing their interest rate hiking cycle but felt they had to wait to assess the effects of the past three hikes before moving again. They did warn that further hikes should not be ruled out if inflation picked up but that is standard fare for central bankers.
Today’s big news is the UK inflation data. Most analysts are forecasting a push above 3.0 percent and the necessity for the Governor of the Bank of England to write to the Chancellor to apologise for being lax in controlling inflation. This is pretty well priced into the stubborn Pound so we ought only to expect a drop in the value of Sterling if the inflation rate is below 2.9 percent. We will also get the economics expectation index from the German ZEW institute. This is well respected as a leading indicator but given the recent drop in German economic growth and the poor industrial production data last month; this has the makings of a poor result, maintaining the pressure on the Euro.
And then, other than a smattering of minor US releases, no less than three Federal Reserve Presidents speaking at various points throughout the afternoon and that is that. So have a lovely Shrove Tuesday, my advice is to go ahead and flip those pancakes, then wipe up that mess on the floor and ceiling and enjoy the second one which is generally cooked far less flamboyantly.
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