“For those of you that have a particular interest in the USD this post provides some detailed information. Paul Dawson a good friend of mine from the Institute of Economic Affairs (IEA) http://www.iea.org.uk/ provides us with this information”.
It is very difficult to predict turning points in history. George Soros was correct in 1992 IN SAYING that sterling could not survive as a member of the European exchange mechanism, making a lot of money in the Process. Although he has not been as lucky with his Russian investments to say the least.
I like to look at the lessons of history and have been intrigued by the recent visit to china undertaken by the US treasury secretary Tim Geithner. I am prepared to stick my neck out amidst speculation about establishing a new world currency. China sorts out its economy by moving away from exporting and stimulating domestic demand while at the same time reforming its quasi governmental banking sector then the Chinese currency - the twenty first could become the next major reserve currency by the middle Of the twenty first century supplanting the dollar which has assumed this role since World War 2.
Tim Geithner gave a lecture at Peking University at which students openly questioned him about the safety of Chinese assets held in the US and laughed when he replied,
"Chinese assets are very safe." ref Financial Times 2/6/2009
Although many might argue that it is too early to say this could be seen as a turning point the economic facts confronting the US are not sanguine. At some point, currency markets and the individuals who operate within them will realise that something significant has changed in the way in which the US economy operates and after the proverbial penny drops their reaction will be swift and dramatic.
Currently the US and Chinese economies exist in a symbiotic relationship with US consumers buying cheap goods made in China (rather than the US as was once the case) and the Chinese investing the proceeds in US assets. According to the FT of 2/6/2009 94% of their foreign currency assets are held in US$ assets and only 6% are directly invested. Also, 70% of the $2,000 billion in foreign currency assets are held in US government bonds.
For the Chinese and other overseas governments the dollar is a global currency and US overnment bonds are perceived to be both safe and highly liquid. What the Chinese government and other investors are starting to realise is that the US economy is not the hegemon it once was and at some point they will decide to begin switching out of dollars and US bonds. This will not happen overnight as the sums involved are very large and as with trying to get a supertanker to change course any movements will initially be difficult to e.g. have also to decide where else they would like to invest as e.g. the euro has its own problems and gold is limited in supply.
Concerns about how long the US would remain a superpower were first raised by historian Paul Kennedy in his 1987 book "The Rise and Fall of the Great Powers" where he predicted that US military overstretch around the world and the cost of running its military machine would undermine the rest of the economy. Events did not turn out like that but more recently both Alan Greenspan in "The Age of Turbulence" and Niall Fergusson in "Colossus" have both expressed grave concerns about spiraling US public debt arising not just from defence commitments but more worryingly from growing healthcare and social security costs as the postwar baby boom generation starts to retire.
The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500-2000 (Paperback) Paul M. Kennedy (Author)
The concern is that notwithstanding the pledge by the Obama administration to reduce the fiscal deficit to 3% of GDP (whereas in 2009 it is expected to reach nearly 13% of GDP - ref FT 3/6/2009) this will involve some very messy political decisions and the electoral cycle may force such decisions to be put off until another day.
The other problem is that the need to issue more public debt during an economic downturn could at some point precipitate a re-rating of US debt by the credit ratings agencies. Should this happen it would have a catastrophic effect on investor confidence. Bond yields would rise as their prices fell and the US government would have to pay higher interest rates in order to secure the necessary funding. The other danger is that as more debt is issued the cost of paying the interest on that debt can rise exponentially. These concerns have been raised by the US bond fund manager PIMCO and I attach a link to the recent Investment Outlook written by Bill Gross.
Staying Rich in the New Normal
Large scale debt issuance is also inflationary and for those of you who appreciate country music May I take this opportunity to draw your attention to a new song by Merle Hazard with the lyrics,
'Inflation or deflation,
Tell me if you can,
Will we be Zimbabwe or will be Japan"
http://www.merlehazard.com/Merle_Hazard/Home.html
Enjoy the song but don't expect the long term prospects for the US Economy to be anything to sing about.
Best wishes
Paul
Currency Today
Thursday, 4 June 2009
Thursday, 14 May 2009
Sterling falls after Bank of England Quarterly Inflation report
Thursday 14/05/2009
• Dollar makes gains as major indexes post biggest loss since April 20th
• Risk aversion reappears on weak US retail sales report to rally the buck
• Sterling falls after Bank of England Quarterly Inflation report
• Industrial production in E/Zone slumps, weakening the euro
• Oil prices lower after a plunge in US stocks & weak US retail sales posted
US Dollar:
The dollar gained versus the euro and sterling yesterday after major equity markets had their biggest losses since April 20th and an unexpected drop in retail sales hurt consumer shares. Risk aversion jumped straight back into the market and spooked investors back into the safety zone of the yen and dollar. This pushed the greenback up by a cent on sterling to trade at $1.5122 and over a cent against the euro to trade around $1.3568. The worse than expected data will add a cautious note to trading and put a question mark on ‘green shoots’ hopes. While the dollar benefited from a decline in riskier rivals yesterday, there are persistent concerns over the greenback that have market analysts questioning how safe this traditional safe haven will continue to be. A report from China showing industrial production data wasn’t as robust as expected also helped bring risk sentiment back into the market, adding to the dollars more attractive position.
Data 13.30: PPI MoM & Initial Jobless Claims
Pound:
The pound started the day off yesterday fairly strong against the dollar and trading sideways against the euro, until the release of the Bank of England Quarterly inflation report at 10.30am. The central bank cut its forecasts for growth and raised its estimate for future inflation as it published its findings. The bank said the weaker profile for growth reflected a weaker than expected performance in Q1. In the bank report, inflation looks set to fall back below 2% later this year, putting a halt to expected interest rates rises anytime soon. This was also a reason
for the pound to be sold off. This saw the pound plummet against both the dollar and euro, with over a cent down for cable to hit $1.5148. Against the euro, we saw a small drop, but this was steamed to an extent after the eurozone released its own weak economic data, pushing GBP/EUR below 1.11.
No data.
Euro:
The euro was under pressure yesterday which kicked off with risk aversion coming back into the market, staring in Asia and spreading throughout Europe, with the dollar pulling back its losses on the single currency. The euro then released it s own bag of trouble in the form of the E/Zone Industrial Output report which showed that industrial production in the 16 countries that use the euro slumped to a fresh record low on the year in march, as output declined across all sectors and in major eurozone economies. EUR/USD fell from $1.36874 to $1.3585. The euro did see some gains on sterling, after the UK released its quarterly inflation report, which was a signal to
players to sell the pound. This saw EUR/GBP push through the 0.90level, but has given up some of those gains this morning.
Data 09.00: European Central Bank Monthly Report.
General:
• Oil prices are lower this morning after a plunge in US stocks and weak retails sales in the worlds biggest economy cut short a recent rally. Nymex crude fell 29 cents to $57.73 per barrel.
• Gold is retracing some early losses, yet is still down 90 cents to trade at $925.20 per troy ounce.
Currency Today
• Dollar makes gains as major indexes post biggest loss since April 20th
• Risk aversion reappears on weak US retail sales report to rally the buck
• Sterling falls after Bank of England Quarterly Inflation report
• Industrial production in E/Zone slumps, weakening the euro
• Oil prices lower after a plunge in US stocks & weak US retail sales posted
US Dollar:
The dollar gained versus the euro and sterling yesterday after major equity markets had their biggest losses since April 20th and an unexpected drop in retail sales hurt consumer shares. Risk aversion jumped straight back into the market and spooked investors back into the safety zone of the yen and dollar. This pushed the greenback up by a cent on sterling to trade at $1.5122 and over a cent against the euro to trade around $1.3568. The worse than expected data will add a cautious note to trading and put a question mark on ‘green shoots’ hopes. While the dollar benefited from a decline in riskier rivals yesterday, there are persistent concerns over the greenback that have market analysts questioning how safe this traditional safe haven will continue to be. A report from China showing industrial production data wasn’t as robust as expected also helped bring risk sentiment back into the market, adding to the dollars more attractive position.
Data 13.30: PPI MoM & Initial Jobless Claims
Pound:
The pound started the day off yesterday fairly strong against the dollar and trading sideways against the euro, until the release of the Bank of England Quarterly inflation report at 10.30am. The central bank cut its forecasts for growth and raised its estimate for future inflation as it published its findings. The bank said the weaker profile for growth reflected a weaker than expected performance in Q1. In the bank report, inflation looks set to fall back below 2% later this year, putting a halt to expected interest rates rises anytime soon. This was also a reason
for the pound to be sold off. This saw the pound plummet against both the dollar and euro, with over a cent down for cable to hit $1.5148. Against the euro, we saw a small drop, but this was steamed to an extent after the eurozone released its own weak economic data, pushing GBP/EUR below 1.11.
No data.
Euro:
The euro was under pressure yesterday which kicked off with risk aversion coming back into the market, staring in Asia and spreading throughout Europe, with the dollar pulling back its losses on the single currency. The euro then released it s own bag of trouble in the form of the E/Zone Industrial Output report which showed that industrial production in the 16 countries that use the euro slumped to a fresh record low on the year in march, as output declined across all sectors and in major eurozone economies. EUR/USD fell from $1.36874 to $1.3585. The euro did see some gains on sterling, after the UK released its quarterly inflation report, which was a signal to
players to sell the pound. This saw EUR/GBP push through the 0.90level, but has given up some of those gains this morning.
Data 09.00: European Central Bank Monthly Report.
General:
• Oil prices are lower this morning after a plunge in US stocks and weak retails sales in the worlds biggest economy cut short a recent rally. Nymex crude fell 29 cents to $57.73 per barrel.
• Gold is retracing some early losses, yet is still down 90 cents to trade at $925.20 per troy ounce.
Currency Today
Thursday, 7 May 2009
Bank of England left rates unchanged at 0.5%
The Bank of England left rates unchanged at 0.5% as expected today, but did add there was to be another £50bn pumped into the economy. This initially seems to have reduced the pounds position against the dollar and euro, but sterling is still managing to hold onto gains made earlier this week.
Given rising evidence that the worst of the U.K. recession may be over and given the ease with which the pound broke back over key resistance at $1.50, sterling back up towards $1.55 looks like a real possibility along with the 1.15 mark against a weaker Euro. The recent data releases are perceived as indication that the U.K. economy is no longer in meltdown mode but 'just' facing a nasty but more normal recession. Of course, downside risks for the pound remain. Not all the U.K. economic news is likely to be positive; a rise in global risk aversion could still take its toll and concerns over how the U.K. will fund its public sector deficit will continue to pose a threat.
Let's hope the Euro rate continues to improve, I have to say my recent trip to Pons in France over the bank holiday was noticeably more expensive at 1.09 (on my travel money) but the seafood, booze, sunshine and laughter certainly made up for it!
Currency Today
Given rising evidence that the worst of the U.K. recession may be over and given the ease with which the pound broke back over key resistance at $1.50, sterling back up towards $1.55 looks like a real possibility along with the 1.15 mark against a weaker Euro. The recent data releases are perceived as indication that the U.K. economy is no longer in meltdown mode but 'just' facing a nasty but more normal recession. Of course, downside risks for the pound remain. Not all the U.K. economic news is likely to be positive; a rise in global risk aversion could still take its toll and concerns over how the U.K. will fund its public sector deficit will continue to pose a threat.
Let's hope the Euro rate continues to improve, I have to say my recent trip to Pons in France over the bank holiday was noticeably more expensive at 1.09 (on my travel money) but the seafood, booze, sunshine and laughter certainly made up for it!
Currency Today
Monday, 20 April 2009
The Uk Pound comes under pressure from possible budget statements
The dollar is trading much higher today as risk aversion (investors avoiding risk) proves the dominant theme in currency markets in advance of this week's U.S. bank stress tests update.
Stocks, a key indicator of risk sensitivity in global markets, are on the retreat, with European indexes lower and U.S. stock futures also in negative territory. U.S. stocks are off...on the index futures, and that's having all the normal knock-on effects across the other currencies," said Adam Cole, chief currency strategist at RBC Capital Markets in London.
Over the weekend, the Obama administration appeared to be taking a more cautious tone, with the president suggesting that further government support may be needed as a result of the stress tests on the U.S. banking community. That encouraged investors to again shy away from high-risk asset markets with most equities making minimal gains and the dollar and the Japanese strengthening.
The U.K. pound has come under pressure by risks associated with this Wednesday's budget statement. The euro is also on the retreat after European Central Bank President Jean-Claude Trichet's suggestion the bank will cut rates by 25 basis points as well as apply nonstandard monetary easing at its next policy meeting in May. This has helped moved the USD strengthen against the Euro but has seen the opposite happen with the pound against the Euro now trading at 1.1254, over one cent down from the 1.1372 recent high seen on Friday.
According to the Guardian on Friday Trade minister Mervyn Davies said today he is not worried about the pound declining in value, saying that a weak currency will help drive the British economy out of recession. The article also mentioned that The pound's decline reflects the economy's vulnerability during the global financial crisis and economic downturn because of its heavy reliance on financial services. This has clearly been reflected in the pound’s weakness against the Euro since news of Northern Rock was released in 2007.
See the article on the link below:
http://www.guardian.co.uk/business/2009/apr/17/pound-mervyn-davies-recession
I also feel that sterling and the UK economy in the same way will see a fast recovery in employment and growth when the global and US economy in particular start to “turn a corner” for the better.
Talking about “turning a corner” my work 5 a side team got our first win last week (9-4) perhaps aided by my shouting of “we are winners” (this one got lots of laughs!) and “keep up the pressure” as I defended like my life was on the line and scored a couple of goals. Bring on Wednesday evening…
Toby Fischer
Currency Today
Stocks, a key indicator of risk sensitivity in global markets, are on the retreat, with European indexes lower and U.S. stock futures also in negative territory. U.S. stocks are off...on the index futures, and that's having all the normal knock-on effects across the other currencies," said Adam Cole, chief currency strategist at RBC Capital Markets in London.
Over the weekend, the Obama administration appeared to be taking a more cautious tone, with the president suggesting that further government support may be needed as a result of the stress tests on the U.S. banking community. That encouraged investors to again shy away from high-risk asset markets with most equities making minimal gains and the dollar and the Japanese strengthening.
The U.K. pound has come under pressure by risks associated with this Wednesday's budget statement. The euro is also on the retreat after European Central Bank President Jean-Claude Trichet's suggestion the bank will cut rates by 25 basis points as well as apply nonstandard monetary easing at its next policy meeting in May. This has helped moved the USD strengthen against the Euro but has seen the opposite happen with the pound against the Euro now trading at 1.1254, over one cent down from the 1.1372 recent high seen on Friday.
According to the Guardian on Friday Trade minister Mervyn Davies said today he is not worried about the pound declining in value, saying that a weak currency will help drive the British economy out of recession. The article also mentioned that The pound's decline reflects the economy's vulnerability during the global financial crisis and economic downturn because of its heavy reliance on financial services. This has clearly been reflected in the pound’s weakness against the Euro since news of Northern Rock was released in 2007.
See the article on the link below:
http://www.guardian.co.uk/business/2009/apr/17/pound-mervyn-davies-recession
I also feel that sterling and the UK economy in the same way will see a fast recovery in employment and growth when the global and US economy in particular start to “turn a corner” for the better.
Talking about “turning a corner” my work 5 a side team got our first win last week (9-4) perhaps aided by my shouting of “we are winners” (this one got lots of laughs!) and “keep up the pressure” as I defended like my life was on the line and scored a couple of goals. Bring on Wednesday evening…
Toby Fischer
Currency Today
Wednesday, 15 April 2009
Sterling continuing to perform
The pound has continued its rally against both the dollar and the euro in this morning's trading, aided by positive housing data released this morning for the UK by the Royal Institute of Chartered Surveyors. We have also seen negative data from the euro zone today in the form of a German think tank lowering its projection for German GDP, weighing down the single currency and Weber (a European Central Bank member) states the European Central Bank has a bit more leeway to lower interest rates at which it provides liquidity to banks.
We are currently trading for GB POUND /EURO at 1.1328. Sterling against the US Dollar is also rallying and the key resistance level was briefly broken above 1.50 earlier before moving down to 1.4930. Be aware that market attention will now likely focus on a rash of new data from the U.S. later in the day, including industrial production and CPI (inflation) which is expected to show another monthly decline.
Let's hope the pound maintains its strength but always be prepared for sharp moves back down if UK data starts to disappoint again. Have a great day and let's hope our English team's Man Utd and Arsenal play as well as me at my 5 a side football game tonight.
Currency today
We are currently trading for GB POUND /EURO at 1.1328. Sterling against the US Dollar is also rallying and the key resistance level was briefly broken above 1.50 earlier before moving down to 1.4930. Be aware that market attention will now likely focus on a rash of new data from the U.S. later in the day, including industrial production and CPI (inflation) which is expected to show another monthly decline.
Let's hope the pound maintains its strength but always be prepared for sharp moves back down if UK data starts to disappoint again. Have a great day and let's hope our English team's Man Utd and Arsenal play as well as me at my 5 a side football game tonight.
Currency today
Thursday, 9 April 2009
Sterling remains stronger against Euro but don’t be fooled
Sterling has been heading north against the Euro since the 27th March (1.06 to 1.11) and it is very easy to get carried away with this positive move and maintain “a false sense of security” that the rate will continue to go up.
Well firstly we need to look a little deeper as to why this has happened in the last few weeks and the outlook for sterling. One of the main reasons for continued Euro weakness against the pound today was down to poor data for German (the powerhouse of Europe) as exports fell for a fifth month by 0.7%. The market clearly did not take this news well for the Euro as despite the rate holding up domestic news for the UK continues to mainly disappoint.
The GDP report showed our economy shrunk by 1.5% in quarter one of 2009 resembling the 1979 recession and although the economy has started to show some signs of life more recently, the deteriorating employment market is likely to lower expectation and confidence in a quick “bounce back” for our economy.
The bank of England’s quarterly credit-conditions survey showed that banks expect a rise in mortgage availability in the second quarter, and that there was greater credit supply to companies in the first three months of 2009, some positive words…
Interest rates are expected to stay at 0.5% tomorrow as the Bank of England has little room to move whilst it observes the evidence that recent actions (including quantitative easing – printing money) are having the intended effect on the economy or perhaps need to be supplemented. If the Bank indicates that more needs to be done such as further easing measures then sterling could easily weaken off again.
The problem we have here in the UK is our clear exposure to overseas events reflected in the condition of our economy (a rapid slow down!) and currency as the global economy slows. Normally you would expect a sharp depreciation in a currency to aid manufacturing as our products become more attractive to buy overseas. However this sector has not benefitted from a weak pound as the euro zone and US economies show a drop in demand.
Despite tomorrow being the last day of the working week thanks to Easter (lots of relaxing for us all!!!) expect some volatility in the pound vs the Euro and if the rate is continuing to concern you as your deadline becomes closer my advice is to “lock in a rate” for some or if not all of your requirements over the next month or so to protect you from sharp unexpected drops in the rate.
Happy Easter.
Toby
Currency Today
Well firstly we need to look a little deeper as to why this has happened in the last few weeks and the outlook for sterling. One of the main reasons for continued Euro weakness against the pound today was down to poor data for German (the powerhouse of Europe) as exports fell for a fifth month by 0.7%. The market clearly did not take this news well for the Euro as despite the rate holding up domestic news for the UK continues to mainly disappoint.
The GDP report showed our economy shrunk by 1.5% in quarter one of 2009 resembling the 1979 recession and although the economy has started to show some signs of life more recently, the deteriorating employment market is likely to lower expectation and confidence in a quick “bounce back” for our economy.
The bank of England’s quarterly credit-conditions survey showed that banks expect a rise in mortgage availability in the second quarter, and that there was greater credit supply to companies in the first three months of 2009, some positive words…
Interest rates are expected to stay at 0.5% tomorrow as the Bank of England has little room to move whilst it observes the evidence that recent actions (including quantitative easing – printing money) are having the intended effect on the economy or perhaps need to be supplemented. If the Bank indicates that more needs to be done such as further easing measures then sterling could easily weaken off again.
The problem we have here in the UK is our clear exposure to overseas events reflected in the condition of our economy (a rapid slow down!) and currency as the global economy slows. Normally you would expect a sharp depreciation in a currency to aid manufacturing as our products become more attractive to buy overseas. However this sector has not benefitted from a weak pound as the euro zone and US economies show a drop in demand.
Despite tomorrow being the last day of the working week thanks to Easter (lots of relaxing for us all!!!) expect some volatility in the pound vs the Euro and if the rate is continuing to concern you as your deadline becomes closer my advice is to “lock in a rate” for some or if not all of your requirements over the next month or so to protect you from sharp unexpected drops in the rate.
Happy Easter.
Toby
Currency Today
Wednesday, 1 April 2009
Sterling (and me) surviving!
Hello and good afternoon from my "city" desk in Bishopsgate.
Sterling has picked up a little from yesterday against the Euro and USD. After trading within the 1.07 range at the beginning of the week the pound edged up to high of 1.0919 on the day but is now trading lower at 1.0840. Against the USD, sterling pushed up to a high of 1.4432 by mid day before trading lower at 1.4355 near similar levels achieved towards the end of trading yesterday.
This came after the UK produced some positive economic news for a change. The UK purchasing managers index (It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy) increased to 39.1 from the forecast figure of 34.9. This is regarded as fresh indication that perhaps the government's efforts to stimulate the economy and get the banks to lend may be working.
Without sounding like a "kill joy" be careful not to read too positively into this news for the UK and sterling as our economy continues to look vulnerable. Any poor news such as Nationwide house price data due out for the UK in the morning could easily remove these gains.
On to me, although there is "protests" going on outside my office courtyard entrance at St Helens Place (I can't hear anything) on Bishopsgate, I was still able to grab a sandwich at lunch. The experience for me with singing, live music and dancing reminded me more of Notting Hill Carnival than a serious Protest. I have however heard news of trouble at RBS and the Bank of England, so hopefully our end of the city will stay calm.
I'm off to watch England at Wembley tonight, if I can get out of my office!!! Have a great evening.
Pound Euro exchange rate = 1.0840
Sterling has picked up a little from yesterday against the Euro and USD. After trading within the 1.07 range at the beginning of the week the pound edged up to high of 1.0919 on the day but is now trading lower at 1.0840. Against the USD, sterling pushed up to a high of 1.4432 by mid day before trading lower at 1.4355 near similar levels achieved towards the end of trading yesterday.
This came after the UK produced some positive economic news for a change. The UK purchasing managers index (It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy) increased to 39.1 from the forecast figure of 34.9. This is regarded as fresh indication that perhaps the government's efforts to stimulate the economy and get the banks to lend may be working.
Without sounding like a "kill joy" be careful not to read too positively into this news for the UK and sterling as our economy continues to look vulnerable. Any poor news such as Nationwide house price data due out for the UK in the morning could easily remove these gains.
On to me, although there is "protests" going on outside my office courtyard entrance at St Helens Place (I can't hear anything) on Bishopsgate, I was still able to grab a sandwich at lunch. The experience for me with singing, live music and dancing reminded me more of Notting Hill Carnival than a serious Protest. I have however heard news of trouble at RBS and the Bank of England, so hopefully our end of the city will stay calm.
I'm off to watch England at Wembley tonight, if I can get out of my office!!! Have a great evening.
Pound Euro exchange rate = 1.0840
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