| |
The foreign exchange market news is supplied by TorFX, a leading provider of foreign exchange services. |
Mon, 05 Ja 2009 04
Foreign Exchange Outlook Podcast - 5th January
The foreign exchange outlook podcast returns for 2009 with an update of the currency market news.
Today:
- Why we're not at parity with the Euro, yet.
- The US Dollar rebound
You can download the podcast directly from here, subscribe to the blog here or if you have iTunes installed click here.
If you have any questions or comments about this Podcast please leave a comment below or call TorFX now on 0800 612 9625.
Please Note: Every effort is made to ensure the accuracy of the information contained within this communication, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. This podcast is intended for general information and interest purposes only. Any opinions expressed are those of the individuals featured, and do not represent advice or inducements to trade.
| Mon, 05 Ja 2009 02
The Pound drops close to parity against the Euro but sustained weakness in the Euro-zone economy may prompt a rebound over the coming weeks
The focus in financial markets will continue to look at the factors that were the primary driving forces towards the end of 2008 in the depth and durations of the economic downturn in the major world economies and the consequent extent of monetary or quantitative easing.
Following on from last week, the Pound slumped for a third consecutive week against the Dollar, trading as low as $1.4380 on Friday, to record the longest run of declines since September, while the UK currency also lost ground against a basket of currencies as mortgage approvals tumbled and manufacturing shrank.
Lenders granted just 27,000 home loans in November, down from 31,000 the previous month, and banks said in a survey that they plan to restrict all lending further in 2009, leading to speculation that the government will have to announce a second stimulus package to revive spending.
UK mortgage approvals have now slumped to the lowest level since records began in 1999 as house prices fall by the most in 25-years in 2008 and the deepening UK recession is expected to see the slump in the property market gather momentum over the coming months.
According to a report from HBOS Plc, house prices plunged an annual 18.9% year-on-year in December and that prompted the Prime Minister Gordon Brown to pledge new measures to try and bolster the economy and halt the first recession since 1991.
Elsewhere, the Pound was also undermined as a report from the Chartered Institute of Purchasing and Supply showed that UK manufacturing shrank for an eighth consecutive month in December as companies shed jobs and limit production.
The Nationwide Building Society released a statement on Friday, saying that the lender won’t be passing on further reductions in the Bank of England’s benchmark interest rate and the government will now have to look less conventional techniques in an attempt to revive growth.
The Bank’s monetary policy committee slashed rates to 2.0% in December and to the lowest level since 1951 but investors are already speculating on the probability of another 50 basis point reduction this Thursday as the freeze in lending persists.
The Pound edged perilously close to parity against the Euro over the Christmas and New Year period amid concerns that the UK economy is headed for the worst and most prolonged recession since the end of the Second World War, which will force the Bank of England into a period of quantitative easing.
The Pound last year posted its worst annual performance against its European counterpart since the Euro's introduction in 1999 amid speculation that the Bank of England will keep cutting interest rates all the way down to zero per cent and mirror the actions of the U.S Federal Reserve.
Nevertheless, the UK currency may rebound from its worst year on record against the Euro as investors start betting on a recovery in the UK economy, while the revival in risk appetite saw the FTSE 100 Index post its biggest-ever gain for the first trading day of the new year.
The Euro rallied furiously against both the Pound and the Dollar amid suggestions that the European Central Bank will not cut interest rates below 2.0% but the worsening economic outlook in the region has revived speculation that the policy makers will have to ignore deflationary pressures and continue the pace of monetary easing.
The ECB Vice President Lucas Papademos said that an economic recovery may not begin until 2010 and that policy makers will have the scope to cut interest rates if inflationary pressures slow further.
The Central Bank have reduced the benchmark lending rate by 175 basis points since early October to 2.5% but policy makers are under pressure to cut more aggressively amid Europe’s first recession in 15-years.
European retail sales fell for a seventh consecutive month in December, while manufacturing output has shrank at the fastest pace on record and the economy is expected to be even weaker in 2009 than the Central Bank’s prediction of a 0.5% contraction last month.
The Euro may also struggle to stem the flow of losses this week as further weak economic data is anticipated and the downturn in activity is likely to be highlighted by the falls in both German and French industrial production.
Elsewhere, unemployment in the Euro-zone is expected to increase marginally in November, while the focus this week will fall on the harmonised index for consumer prices, which is expected to confirm that the inflation rate fell to 1.8% in December from 2.1% the previous month.
The Dollar has made robust gains against the Pound in recent weeks, while the U.S currency has also bounced back versus the Euro but the data released this week is expected to highlight the continued weakness in the economy.
Service sector growth is not forecast to show any significant recovery in December, while factory orders and pending home sales will probably post further declines but the focus this week will fall on the U.S employment report this Friday.
Another substantial drop of 485,000 in non-farm payrolls is anticipated in December, which would give a cumulative decline of more than 1.7 million jobs over the past four months and the unemployment rate is expected to rise to 6.9% from 6.7% the previous month.
Data Released 5th January
U.S 15:00 Construction Spending (November)
written by Adam Solomon
| Mon, 22 De 2008 05
The Euro continues to make widespread gains against the majors and may rally towards $1.50 versus the Dollar according to the Fibonacci sequence
Following on from last week, the Pound declined heavily against the Euro, dropping 4.1% to yet another record low of 1.0470 and perilously close to parity amid another historic week for financial markets as the Federal Reserve cut U.S interest rates to a range between zero and 0.25% and investors speculated on the probability of the Bank of England following their example.
The UK currency also lost ground against the Dollar, slipping back under $1.5000 on Friday as UK unemployment rose in November at the fastest pace since 1991, while retail sales declined further and the minutes from the Bank of England's last policy meeting showed that policy makers even considered a bigger reduction in December.
The increase in the UK jobless rate to the highest level since 1991 has further hampered Sterling sentiment with the claimant count surpassing the 1 million mark for the first time since 2001 as companies’ struggle to overcome the existing financial crisis and slash their workforce.
The monetary policy committee also voted unanimously to cut the borrowing costs to 2.0%, the lowest level since 1951, as the worsening economic climate caused a decline in tax revenue, while the UK budget deficit widened to a record level in November.
In addition, the Pound also cane under pressure as UK mortgage approvals fell 51% year-on-year last month and the language used in the minutes prompted speculation of another aggressive easing in rates next month as policy makers consider lowering borrowing costs to the lowest level in the Bank of England's history.
The abysmal tone of recent UK economic data has illustrated the problems facing the beleaguered UK economy as the government attempts to spur lending and stimulate the economy that has been battered by the global credit crisis and thrust into the worst recession since the 1970s.
The BoE governor Mervyn King and the UK Chancellor Alistair Darling have both expressed the need to revive confidence in the banking system and spur consumer spending but a collaboration of rate cuts and increased liquidity has failed to stimulate growth and the Bank of England may have to resort to a period of quantitative easing to boost growth.
However, a report from the Office of National Statistics on Friday showed that UK retail sales unexpectedly increased in the three months through November as higher food demand for the Christmas period offset declines elsewhere with sales increasing 0.3% on the month after previously falling by the same amount in October.
In addition, a separate report showed that UK consumer confidence improved in December as the cost of petrol prices retreated and the government cut value added tax to 15.0% in an effort to revive the economy by encouraging people to step up spending despite the risk of mass unemployment.
An index of sentiment unexpectedly rose in December as lower energy costs and discounted goods helped bolster sales even as the economy hurtled towards a recession and the cut in tax has helped boost large purchases.
The positive momentum surrounding the Euro saw the single currency rally to a record high against Sterling for nine days consecutively this month and also make strong gains versus the Dollar amid suggestions that the European Central Bank are nearing the end of their easing cycle and are not prepared to drop interest rates under 2.0%.
Nevertheless, ECB governing council member Miguel Angel Fernandez Ordonez said that the Central Bank may cut interest rates in January if inflation expectations were significantly less than 2.0% and his comments over the weekend contrast with the recent rhetoric from the chairman Jean-Claude Trichet who said there is a limit to how far policy makers can cut rates.
From a technical perspective, the Euro may rise to $1.5000 against the Dollar over the next month, extending its 10% advance well beyond the current levels according to a series of numbers known as the Fibonacci sequence.
The Dollar has weakened to the lowest level against the Euro since late September as the Fed opted to cut interest rates to near zero per cent in an unprecedented action to stimulate the economy and the U.S currency subsequently fell for the fourth consecutive week against the Euro as reduction reduced the allure of U.S assets as a haven.
Data Released 22nd December
GER 07:00 Gfk Consumer Confidence Index (January)
GER 07:00 Import Prices
written by Adam Solomon
| Fri, 19 De 2008 03
Foreign Exchange Outlook Podcast - 19th December
The new shorter, more frequent, Foreign Exchange Outlook Podcast, brought to you by TorFX.
Today:
- The last trading day for spot trades before Christmas
- Further bad news on the Euro but US Dollar weakness
TorFX would like to wish all our listeners and readers a very Merry Christmas and a happy and prosperous New Year.
You can download the podcast directly from here, subscribe to the blog here or if you have iTunes installed click here.
If you have any questions or comments about this Podcast please leave a comment below or call TorFX now on 0800 612 9625.
Please Note: Every effort is made to ensure the accuracy of the information contained within this communication, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. This podcast is intended for general information and interest purposes only. Any opinions expressed are those of the individuals featured, and do not represent advice or inducements to trade.
| Thu, 18 De 2008 03
The Pound plunged to a record low against the Euro yesterday as unemployment rockets to the highest level since 1991
The Pound plunged to yet another record low against the Euro yesterday, dropping to a low of 1.0703 versus the Euro, while also registering sharp losses versus a basket of currencies following reports that UK jobless claims rose in November at the fastest pace since 1991 and the BoE minutes increased speculation that interest rates will be cut to zero per cent over the coming months.
According to a report from the Office of National Statistics, the number of people out of work and claiming benefits rose 75,700 from October to 1.07 million, the highest level since July 2000, and unemployment will continue to rise sharply over the coming months as UK companies slash jobs amid the worst financial crisis in almost a century sends shockwaves through the market.
Manufacturing and service sector growth has contracted at the fastest pace in decades and companies affected by the worldwide economic slump and almost 30,000 jobs are under threat from the collapse of Woolworths Plc and MFI Retail Ltd after both retailers went into administration last month and has struggled to find buyers.
The Prime Minister Gordon Brown responded to the unemployment data by telling reporters that the government is prepared to do whatever is necessary in order to improve the labour market as business service companies are expected to cut a further 275,000 jobs over the next two years as the deepening and prolonged recession ravages the advertising and real estate industries.
The UK claimant count rose for a tenth consecutive month in November, the longest stretch of losses since the 16 months through June 2006, and the meteoric rise in claims was revised to 51,800 in October from 36,300 and the jobless rate was last above the 1 million mark in January 2001.
The UK economic boom over the past 16-years has well and truly ended as the economy contracts 0.5% in the revised figures for the third quarter and recent estimates from the Bank of England indicate that growth will shrink 1.3% in 2009 despite severe monetary easing and the government's efforts to revive lending.
Gordon Brown's handling of the credit crisis has drawn support and seen his party recover in the polls but the Labour party face the prospect of fighting the next election with unemployment approaching 3 million, a level last seen under John Major's tenure as Prime Minister in the early 1990s, and that may encourage Brown to hold a general election before the deadline of June 2010.
The Pound also declined against the Dollar after rising to a high of $1.5618 the previous day following the Federal Reserve's unprecedented decision to cut U.S interest rates to between zero and 0.25% but the focus yesterday fell squarely on the release of the minutes from the Bank of England's last policy setting meeting.
Policy makers lowered interest rates to just 2.0% in December, the lowest level since 1951, and the report yesterday showed that the nine-strong monetary policy committee voted unanimously to cut rates this month, while the accompanying statement indicated that a more aggressive action was considered, which would have brought borrowing costs to the lowest level since the Bank's foundation in 1694.
The chairman of the Bank of England, Mervyn King, said that a larger cut "might be justified by the scale of the downside risks to inflation" and the Pound subsequently declined to yet another record low versus the Euro amid speculation that UK interest rates will be cut to 1.0% in the first quarter of next year.
The monumental decline in Sterling sentiment shows few signs of abating as investors speculate on the possibility of parity with the Euro but the minutes yesterday also highlighted that the depreciation of the Pound "should act to support next export growth" and policy makers are actively talking down the UK currency with the hope that a weaker Pound will attract overseas demand in UK exports.
However, manufacturing only accounts for roughly 14% of UK gross domestic product and the worsening economic climate means that companies are scaling back their workforce and factory production, while the worldwide slump is unlikely to boost demand from abroad in the near-term.
The Pound fell as much as 3.5% against the Euro yesterday and the UK currency looks 'oversold' to a degree, the pace of the decline is showing very few signs of subsiding as investors look at the aggressive actions of the U.S Federal Reserve early this week and believe the Bank of England will follow.
The Pound also came under renewed selling pressure versus the Dollar, dropping 0.9% on the session, as the abysmal tone of UK fundamentals and the increasing prospect of another large cut in borrowing costs continues to weigh on sentiment and will probably push the Pound even lower before the turn of the year.
A former member of the MPC, Charles Goodhart, said yesterday that Mervyn King should exercise "aggressive" policies to combat the economic slump and also urged the governor to approach next year with "courage and flexibility" to do whatever is necessary in bringing the economy of the worst recession since the 1970s.
It could be argued that the recent trend means that the Pound is more at risk among the major currencies as the ongoing financial crisis forces central banks globally to follow the Fed's dramatic example but the European Central Bank have publicly expressed unwillingness to drop the benchmark rate lower than 2.0% as the monetary easing cycle draws to a premature end.
The Euro is rallying strongly against the Dollar and the incredible appreciation versus the Pound is showing few signs of peaking as Europe's inflation rate fell the most in almost twenty years last month as oil prices continued to plummet and provided the ECB with further scope to cut interest rates beyond the current 2.5%.
The President of the Central Bank, Jean-Claude Trichet, said yesterday that there is a limit to how far the ECB are prepared to cut interest rates even as the recession takes hold and inflationary pressures moderate from 3.2% in October to just 2.1% last month, the biggest monthly drop since records began in 1991.
The sustained drop in commodity prices and a deteriorating economic climate raised concerns about the emergence of deflation but the ECB has seemingly discounted that threat, saying that a slowing of price increases is more likely rather than a period of declines.
The Dollar traded close to the lowest level in 13-years versus the Yen yesterday, while the U.S currency also slumped to the weakest versus the Euro since September as the Fed's decision to cut interest rates to between zero and 0.25% reduces the appeal of holding U.S assets.
The greenback also plunged against a basket of currencies and surprisingly failed to take advantage of broad Sterling weakness as long-term treasury yields fell and U.S stocks declined amid speculation that the Fed is running out room to cut interest rates and may have to begin a period of quantitative easing as a last resort to stimulate the economy.
Data Released 18th December
U.K 09:30 PSNCR (November)
U.K 09:30 Retail Sales (November)
GER 09:00 Ifo Index (December)
U.S 13:30 Initial Jobless Claims (w/e 12th December)
U.S 15:00 Leading Indicators (November)
U.S 15:00 Philly Fed Business Survey (December)
written by Adam Solomon
| Wed, 17 De 2008 02
The Pound fell to a record low against the Euro but took advantage of broad Dollar weakness, rising above $1.5600 last night
The Pound resumed its downward momentum against the Euro yesterday, dropping to a fresh record low at 1.1056, while the UK currency took advantage of broad Dollar weakness and rallied to a high of 1.5608 last night after an unprecedented announcement from the U.S Federal Reserve.
The FOMC slashed the main U.S interest rate to a range between zero and 0.25% and said it will do whatever is necessary to bring the economy out of its current slump, warding off fears of a Depression, and reviving credit in an effort to boost stability and spur lending.
In the accompanying statement, policy makers said that they will “employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability” and the Dollar subsequently declined as the cut was greater than anticipated.
The tone of the statement was almost designed specifically to increase an element of risk aversion in the market that encouraged investors to sell safe haven assets in favour of high-yielding currencies and the Dollar has endured the biggest two-day decline against the Euro on record.
Treasuries also rallied as the FOMC added that “the focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations”. The market rallied in anticipation that the Fed will continue to buy mortgage-backed securities in an attempt to force borrowing costs for consumers lower.
Policy makers have now lowered U.S interest rates on nine occasions in little over a year but together with the injection of $1.4 trillion in emergency lending, have so far failed to slow the economic downturn that is leading to the worst recession in a quarter of century and record low borrowings costs.
The key points of the Fed’s statement last night were designed to improve stability in financial markets and weaken the Dollar to boost export demand but the committee also noted that it will purchase agency debt and is ready to expand the program in considering the potential benefits of buying long-term Treasury securities.
The historic decision from the Federal Reserve could lead to a period of quantitative easing as policy makers send an extraordinary message that it is prepared to pump money into the financial sector until the economic downturn is reversed.
In the aftermath of the announcement, the U.S Treasury Secretary Henry Paulson addressed the delay over the projected $14 billion stimulus package to save struggling automakers General Motors Corp and Chrysler LLC and he said that officials were working on the terms of the bailout.
The renewed optimism sweeping through financial markets has curtailed the Dollar’s upside momentum against the majors and the magnitude of the decline last night took the U.S currency above $1.5600 versus the Pound and 1.4147 against the Euro.
The Pound slumped to yet another record low against the Euro and after a brief period of consolidation, the downside move is gathering in momentum and found fresh impetus yesterday after a government report showed that UK inflation fell in November to the lowest level since June.
Falling oil prices and a worsening economic climate has tightened its grip on the economy as consumer prices rose 4.1% from this stage in 2007, compared with 4.5% in October and the result means that the BoE governor Mervyn King had to publish another letter of explanation to the Treasury, explaining why the rate still exceeds the 3% upper limit.
In a letter to the Chancellor of the Exchequer Alistair Darling, King said that Britain’s inflation rate may fall next year to the lowest level since 2002, indicating that policy makers will continue cutting interest rates in the first quarter in attempt to stimulate the economy.
The UK inflation rate may fall below 1% in 2009 and King also emphasised that consumer prices may undershoot the government’s 2.0% target as policy makers will have to deal with a new threat of deflation.
The Pound subsequently declined against the Euro amid increased speculation that the Bank of England will need to cut interest rates from the current 2.0% in January, already at the lowest level since 1951, and Mervyn King has refused to rule out the possibility of deflation next year or cutting borrowing costs to zero per cent.
The Pound has declined over 20% in value against the Euro this year and almost 25% versus the Dollar, which has helped ease price pressures in the UK, while commodities have also tumbled with oil prices plunging 60% since reaching a record level in July.
The annual pace of inflation peaked at 5.2% in September and has exceeded the government’s 2.0% target for 14-months but falling petrol prices have helped, while shops bring forward sales to lure consumers that are concerned that they may lose their jobs.
The UK economy has fallen into a recession in the third quarter as tighter lending conditions rationed credit, while house prices plunged at the fastest pace since 1978 as the government’s attempts to stimulate spending with a £50 billion rescue package has so far failed to revive credit.
Data Released 17th December
U.K 09:30 BoE Monetary Policy Committee Meeting Minutes
U.K 09:30 Average Earnings (3 Months to October)
U.K 09:30 Claimant Count Unemployment (November)
U.K 11:00 CBI Distributive Trades Survey (December)
EU 10:00 Final Harmonised Index of Consumer Prices (November)
U.S 13:30 Current Account Balance (Q3)
OPEC OPEC Meeting
written by Adam Solomon
| Tue, 16 De 2008 02
The Pound rebounds against the majors after falling to another record low versus the Euro for the sixth day in succession
The Pound slumped to yet another record low against the Euro yesterday before bouncing back towards the end of the session as the UK currency snapped five days of declines versus its European counterpart as investors judged that the losses over the past week were excessive.
The Pound tumbled in early trade as the Conservative leader David Cameron said that he opposed a government intervention to improve the UK currency and said that “the fall in sterling against other currencies is the market saying your recession is going to be deeper and your debt that you have to raise in the markets is going to be higher”.
Cameron was a political adviser to the then Chancellor of the Exchequer Norman Lamont who presided over the Pound’s exit from the European Exchange Rate Mechanism in 1992 in an event that become known as “Black Wednesday”.
The somewhat surprising bounce in Sterling came after its 14-day relative strength index, a technical chart used by traders to predict currency movement, fell to a reading of 27.7 and a level below 30 indicates that a revival may be imminent.
The Pound also rallied after reaching a level that would have been equivalent to a record low versus the Deutsche Mark and it could be argued that the downside momentum had reached a significant support level and had to consolidate following an aggressive move over the past week.
The short-term revival in Sterling sentiment also saw the UK currency rally significantly against the Dollar, despite reports that house prices declined further in December and may drop an additional 10% in 2009 as the economy struggles to cope with the worst recession since the 1970s.
The average asking price for a home fell 2.3% from the previous data in November to an average £217,808, according to a report from Rightmove Plc, and the accompanying statement also indicated that rising unemployment will extend the slump in the UK property market over the next year.
The restricted lending conditions due to the financial crisis means that mortgage approvals have fallen to near record lows in recent months, threatening to exacerbate the economic downturn and help push home sales to the lowest level since records began in 1978.
Elsewhere, Barclays Plc CEO John Varley predicted that UK home values may decline by as much as 15% in 2009 as the recession ravages the advertising and real estate industries but the aggressive cut in borrowing costs in accordance with a government rescue package for UK banks is expected to improve sentiment.
The UK Treasury announced yesterday that it will cut the fee it will charge banks to underwrite £250 billion in guarantees in the another measure to help unfreeze credit markets and help stimulate the economy.
Bank’s are beginning to pass on the recent aggressive cut in UK interest rates after the BoE slashed borrowing costs to the lowest level since 1951 in December, while the recapitalisation of UK banks will inevitably free up credit.
In addition, reports this week are expected to confirm that the claimant count breached the 1 million mark for the first time since 2001 and a separate report yesterday from the Centre for Economic and Business Research said that UK business services companies will slash 270,000 jobs over the next two years.
UK stocks teetered between gains and losses yesterday amid reports that HSBC Holdings Plc fell as Europe’s largest bank confirmed that it has about $1 billion at stake in the collapsed Bernard Madoff venture, who allegedly lured some of the world’s biggest institutions into investments where gains were paid using money from new investors.
The Euro pulled back earlier losses to stand relatively unchanged against the Pound last night, while the single currency also rallied to a two month high versus the struggling Dollar amid speculation that the FOMC will cut U.S interest rates to 0.50% this evening.
The U.S currency is also approaching a 13-year low versus the Yen and declined to $1.5378 at one point versus the Pound as a report from the Federal Reserve showed that manufacturing in the New York state collapsed and contracted in December at the fastest pace on record.
The tone of the report will only reinforce support for another reduction in U.S interest rates, while the government dithers over the terms of a possible rescue package for struggling U.S automakers and the Dollar may come under renewed selling pressure as we build up to the announcement this evening.
The Dollar has declined for a second consecutive day against the Pound as the decline was exacerbated by reports from the U.S Treasury that international demand for long-term U.S financial assets weakened in October as overseas investors sold U.S stocks and corporate bonds.
Data Released 16th December
U.K 09:30 Consumer Price Index (November)
- Retail Price Index
EU 09:00 Flash PMI Manufacturing (December)
U.S 13:30 Consumer Price Index (November)
- Ex Food & Energy
U.S 13:30 Housing Starts (November)
- Permits
U.S 13:30 Real Earnings (November)
U.S 19:15 FOMC Rate Announcement
written by Adam Solomon
|
|
|
|
|
|
|
