Monthly Archives: September 2011
New EU rescue plan on the cards
European Central Bank officials have come under increasing pressure in recent weeks to step up their response to the worsening European sovereign debt crisis. These concerns hit the headlines again over the weekend when Christine Lagarde, Head of the IMF, called for immediate action, stating that the organisation had enough funds to meet its current debt obligations to debt-riddled Eurozone nations, but that if debt contagion spread to other more significant European economies, then the IMF might not be able to offer help.
However, market rumours suggest that the EU / IMF is about to announce a bold rescue plan to provide help for Eurozone nations struggling to service their current debts. The package will significantly bolster its ability to offer bail-out assistance by increasing the funds available to the ECB’s bail-out fund, the European Financial Stability Facility (EFSF), from its current level of €440bn to €2 trillion. The increase in emergency funding should cover all potential European debt scenarios in the short-to-medium term, causing a pick-up in investor sentiment towards the Euro. However, whispers are emerging that the IMF is proposing that Greece writes down 50% of its current debt obligations to private investors, a move which would place significant pressure on the European retail banking sector.
At the moment, the currency markets are focussing on the negative element of the rumoured IMF rescue plan, causing the Euro to give up ground. This has seen the GBPEUR rate gain over 1.5c from its Friday close in this mornings trading.
To keep up to date on this ever changing situation feel free to contact me, Stephen Hughes, directly at sah@currencies.co.uk or call me on 01494 787457.
Sterling Euro Slips On Increased QE Risk
Sterling Euro exchange rates have slipped following the Bank of England Minutes this morning. Whilst Quantitative Easing was not extended this month the minutes this morning said the decision was finely balanced and the economic conditions were increasing the likelihood of its introduction. It means October’s meeting may see large volatility on rates as markets try to second guess if and when it will be introduced. Combined with Jean Claude Trichet’s speechcoming up on Friday, and the fact that the ECB may cut interest rates at their next meeting, this currency pair is likely to remain volatile. Further announcements on Italy and Greece’s financial positions are also making analysts lives very difficult. If you have a requirement ot buy or sell either currency then feel free to e-mail cmg@currencies.co.uk or call 01494 787 465 and I would be happy to discuss your options.
Eurozone News – China Shouldn’t Buy Euro Debt
A former advisor to China’s central bank has said China should stop buying Euro bonds and should only do so if certain conditions are met. Whilst Yu Yongding’s views may not represent official Chinese policy, and China has regularly expressed confidence in the Eurozone, they have yet to lay out any concrete support package should the single currency remain in trouble. China holds over a quarter of its FX reserves in Euro and so its approach to this could be instrumental in any long term solution.
Euro Dollar exchange rates have moved around 6% in the greenback’s favour over the last few weeks as the Dollar has strengthened amidst a new flight to safety, especially as the alternative option, the Swiss Franc, has been made a lot less attractive by the Swiss National Bank.
Bank of England Minutes are released in 25 minutes so will be key to short term GBP EUR rates- be ready to move quick on any news of Quantitative Easing being discussed or not.
Bank Of England Minutes Key To Sterling Euro Exchange Rate
GBP EUR exchange rates will be very much dependant on the Bank of England Minutes due out tomorrow morning. Whilst the BofE didn’t increase their asset purchase program of Quantitative Easing this month it is unclear how close they actually came to doing so; the Minutes will reveal all as to what was discussed and the markets will use the information to forecast future bank policy and price this into the exchange rate.
As a result if following some very poor UK data some members of the Bank’s Monetary Policy Committee have pushed for an increase in QE then sterling Euro is likely to fall significantly. However should the bank remain optimistic about a slow but steady recovery in the UK then the pound may claw back some recent lost ground against the single currency. As the outcome is an unknown, and the scale of the movement in exchange rates potentially very large indeed, please do not hesitate to e-mail me for information once the news is published- cmg@currencies.co.uk
Central Bank Action Strengthens Euro
A combined action by major central banks to increase Dollar liquidity has just been announced. The Euro has strengthened further on this move to stabilize banks and assist with the Eurozone debt crisis. For more information or if you have a transaction to make please e-mail me directly at cmg@currencies.co.uk
Germany has not given up on the Euro yet
Angela Merkel was quoted on radio today saying the Eurozone must stick together. Following a tense few days for Euro rates, we have actually seen the Euro gain back some ground against both the pound and the US dollar. This is I feel a combination of investors taking profits ( you can read more on this in my post on our sister site http://www.poundsterlingforecast.com/2011/09/13/be-fearful-when-others-are-greedy-and-greedy-when-others-are-fearful/ ) and Merkel’s comments.
I have written before that despite the huge difficulties in the Eurozone there is a huge economic and political will to keep the Euro alive. If I had to put my neck on the line I think the Euro in it’s current form is doomed. But that the doomsday scenario painted is not necessarily upon us yet. We do seem to be drawing closer however and it is only right that the Eurozone economies seriously start drawing up contingency plans. With shrinking economies and ballooning budget deficits the PIIGS situation is deteriorating. The massive losses in share price of all of the banks exposed to Eurozone debt underlines the lack of confidence that these debts will be repaid. The true extent of the crisis is perhaps better reflected in these falling stocks, since when investors look to the Euro as a currency there are a number of positives. Namely high interest rates and the participation of Germany and France, as two of the world’s largest economies in the Euro project.
Looking to data for the rest of the week ahead, we have Industrial Production orders tomorrow and Unemployment change and Inflation data Thursday. Any releases out of line with expectation could cause some movements but I would expect the biggest news this week will be political fallout from on going discussions over the future of the Euro.
In the last few days EURUSD and GBPEUR movements have been quick and sustained. If you have any trades to make why not get in touch to find out if you could be getting a better deal? We are specialist currency brokers and can act as your eyes and ears in the market to prevent further losses or ensure you benefit from favourable movements.
Feel free to get in touch on (+44) 01494 787 458 or jmw@currencies.co.uk for further information on the markets and how we can assist you in getting the best exchange rates. Please quote JMW and ERF.
Thanks
GBPEUR 6 month high
The continued turmoil in the Eurozone and within the ECB itself has given a boost to the Pound with Friday’s movment taking us to the highest levels we have seen since March.
With European Central Bank chief economist Juergen Stark resigning on Fridayspeculation of conflicts within the ECB over its bond-buying programme are rife. Stark was reportedly one of four members of the ECB who voted against last month’s controversial decision to revive a programme of buying the bonds of indebted eurozone nations.
Mr Stark’s surprise move pointed to continuing divisions in Germany over the ECB’s direction.
While in the short term we may see Sterling gain a little further ground against the Euro as a result of this uncertainty and turmoil in the long term the health of the global and European economy will weigh heavy on the pounds shoulders due to the dire need for international investment to come into the UK and the reduction in trade volume with these failing economies.
Euro Outlook
The major release this week isn’t until Thursday when we get the latest set of inflation (CPI) figures. Analysts are expecting a turn round from negative growth to positive so expect a strong Euro fightback later in the week. Those of you needing to buy the single currency who are still sitting on the fence should seriously consider making a decision prior to this announcement.
To join in my personal Euro debate feel free to contact me at sah@currencies.co.uk
Will the Euro Collapse?
The Euro is really suffering at the moment as evidenced by it’s recent falls against the pound and the dollar. There is a deep rift developing not just economically but also politically over how this crisis can be managed. The Eurozone debt crisis is the biggest threat to the global recovery and the outcome for the Euro rate will be affected by the decisions that are taken. The sides are basically those who are in favour of more bailouts and those not. The current status quo is clearly unsustainable with many feeling an end needs to come to the continuous flows of money emmanating from Germany to the peripheral nations. Some believe however that in order to ensure the future of the Eurozone this needs to continue until such time as they can pay their debts themselves. How long will that take?
A German court decision has confirmed that in future all bailout funds will require approval before the German parliament. This stems from the deep resentment and anger amongst German citizens for the way in which Germany, a hard working and industrious nation, is having to support other countries in the Eurozone, basically because they have mismanaged their own finances. A majority of German citizens do not see it as their responsibility to shore up the rest of Europe’s economies.
So what can they do? This German ruling will make it more difficult for countries in distress to receive funding via Germay, which will not help what is already seen as a long, slow and drawn out process. Italy and Spain are now well in the market’s sights. In July the European Central Bank bought up a huge amount of Italian and Spanish bonds to calm the markets. This had the effect of calming the markets, but did nothing to tackle the underlying problems in the Eurozone. The issue is already flaring up again and I am certain the Euro will continue to struggle. But the Euro remains very strong against the pound due to higher interest rates in the Eurozone versus the UK and the fact the pound is exceptionally weak.
We are seeing more and more problems in the Eurozone, the economic unity is slowly crumbling and clearly not working as expected. The political unity that has underlined the Euro is clearly experiencing grave difficulties too. Merkel and her party are suffering in Germany and we saw earlier this year how a Finnish far right group gained much support on the back of anti europe votes. With a growing concensus around the world that many Euro based countries will not be able to finance their debts confidence is falling.
If you have an upcoming Euro trade I would be weary of waiting for rates to improve significantly. The current range of 1.12-1.15 is due to interest rates in both countries. Until these change we will not see any major movement because interest rates are the biggest factor behind exchange rates. Further crisis in the Eurozone definitely has the potential to move the rate in favour of those buying Euros, but we don’t know exactly how this will all pan out. It is worth noting that the UK’s economic position (and consequently the pound’s) is extremely fragile and will not be able to withstand a serious financial shock that major crisis in Europe will create. The last recession was caused by credit drying up. If that happens again (i.e debts cannot be paid – or at least the markets lose faith that debts will be repaid) it is likely UK banks will suffer which will harm the UK economy and the pound. It really is not as simple as the Euro breaking up and the rates returning to 1.40 ‘just like they used to be’.
The bottom line is we just don’t know what will happen and that is the danger. If you have a currency transfer we can assist with information on what is driving the markets and that will help ensure you get the very best from the market. You can fill in the contact form and speak to us. Alternatively you can contact me direct on 00 44 1494 787458 or jmw@currencies.co.uk
Weak Manufacturing Data gives rise to GBPEUR spike
With UK interest rates set to remain at 0.5% until deep into 2012 and the Euro interest rate remaining solid at 1.5% we can see why exchange rates are where they are. Some poor manufacturing sentiment data from the Eurozone showed confidence was down which has given a small spike on GBPEUR and provided a platform for the rate to break the 1.14 mark this afternoon. On a €200,000 purchase, a trade this afternoon would be £2500 cheaper that at the start of the week…
With interest rate decisions next week for the pound and the Euro we could see some further volatility that would give rise to good trading opportunity for clients. The last UK meeting saw all members vote for no change, representing a change in the policy of the committee. With all the debt problems in the Eurozone I would be very suprised to see a further rate hike on the Euro but in the speech after by Trichet we will learn some more about Euro economic policy going forward. Such events can provide the trading opportunity you are looking for.
With the challenge faced by the UK in it’s economic recovery, we are unlikely to see any major improvements for some time. By major I mean 3 or 4 cents. Put it this way I would expect to see 1.10 before 1.20! Getting the best rate is about being realistic about what is possible in current conditions and being able to take advantage of spikes – like we have seen in the last two days. Markets are moving every two seconds twenty four hours a day, three hundred and sixty five days a year. As specialist currency brokers we keep our clients informed of market developments that can save them money.
No one can tell you exactly what will happen on the markets but we can provide as much information as you need to ensure that you make informed decisions. With a range of contract options to protect your exchange rates we are very well placed to manage your currency requirements in the most profitable way. If you have any questions on the market or just want the best rate, we are a specialist currency broker that has won awards, always beats the banks and can save you money. Please fill in the contact form, alternatively you can speak to the author direct on 00 44 1494 787 458 , you can also e-mail on jmw@currencies.co.uk
I look forward to hearing from you
