Author Archives: Aidan M

Will the Euro Survive?

One question I get asked a lot at the moment by my clients is ‘will the Euro will survive?’  closely followed by ‘when will Greece leave the euro?’  Both are difficult to answer in a sentence, but If i had to I’d say ‘yes in the short term’ and it ‘won’t’, I’ll explain my reasoning now!

I fell that the euro will survive in the short term because European leaders have too much invested in the single currency, to allow it to fail.  I do however feel that the only way the euro will survive is through the formation and wide spread use of a Euro bond.  This would basically mean that rather than each country issuing bonds and therefore owing debt individually, a Euro bond would be issued by the entire EU.  This will reduce the cost of borrowing for peripheral countries and therefore alleviate the debt and budget deficit pressures on these countries. 

Another idea widely floated is the need for fiscal transfers.  The example cited is the US , where richer states pay for poorer states deficits.  In theory, this is happening already through loans and bailouts for Greece, Ireland and Portugal.  However the fiscal transfer is not a loan and would not be repaid.  Personally I can’t see this happening as I think national differences in culture, work ethic, and outlook on life is too varied for one country to be happy to pay another countries debts.  For example, could you see French Tax payers happily funding Irish health care?  It seems unlikely to me.

Therefore in the short term I see the Euro Bond as the most viable option, but longer term I feel that some of the peripheral countries may have to leave the euro in order to manage their own monetary policy and primarily to devalue their own currency if required.

Many clients also ask what this will mean for their currency requirements, if the euro does break up in any way.  Ultimately it will really depend on how the break up occurred.  But as this is unlike in the short term (in my option) I’d expect to see the Euro continue to remain reasonably strong over the coming months as investors will not be scared away from the single currency in my opinion.

To see views of some leading economists and analyst have a look at the following article on the BBC. http://www.bbc.co.uk/news/business-13872847 I found it quite interesting.

UK political pressure fails to help sterling exchange rates

The chancellor George Osborne and the Prime minister have both suggested that they do not want to see the UK contribute any more money to the next Greek bailout.

The Eurozone is in grave danger according to many commentators and there is widespread speculation that the problems in Greece may be the downfall of the single currency.  We are also hearing rumours that the EU were aware that Greece had lied  about its key economic indications in order to get into the Euro in the first place.  This is further undermining the EU and highlighting the shortfall of a  single currency for such a large and diverse economic area.Despite what appears to be a stonewall and fundamental issue for the euro, the single currency has not lost a huge amount of ground as a result. 

EUR USD has fallen a modest 3% since February, while EUR GBP has actually gained 4.4% since February, somewhat surprising consider the situation the euro is in.  The reason for this is that investors have chosen to focus on interest rate outlooks, and as the UK has not hiked rates while the EU has, the single currency has made gains over sterling.

The next key development for Greece could be this evening when the next vote for Austerity measures and the bailout take place.  This could well cause some Euro strength, if a package is agreed.  Despite UK politicians claiming we will not make a contribution, we have to pay £1billion to the next package from the IMF as it has already been agreed.  not great news considering our own budget deficit and economic problems.

Currency market data today – what may move exchange rates?

Economic data releases can cause short terms trends in the currency markets or even shift expectations and result in long term movements for currency pairs.

If you have an upcoming transfer to make, keeping an eye on economic data releases for the countries relevant to your currency pair, can help you to take advantage of spikes in exchange rates.

The key data out for the pound today was UK Purchasing Mangers Index data, which was slightly better than expected.  Tomorrow look out for Purchasing Mangers Index for the services sector.  As the service sector is so vital to the UK economy, this release could be essential for sterling.

if you would like some specific information in relation to your currency pair, fill in the form o the right and you can speak to a currency specialist.  You can also email me directly ajm@currencies.co.uk.

Pound and US Dollar weaken, a Euro Stabilises

The pound has taken losses this morning falling half a percent against the euro and similar amounts vs. the Kiwi Dollar, Norwegian Kroner and other scandinavian currencies, and almost 1% against the Swiss Franc.

Despite these losses sterling is still holding up above the 1.15 interbank level against the Euro and is up for the day against the Indian Rupee, Israeli Shekel, Turkish Lira, Thai Baht and Hong Kong Dollar.  if you need to make a transfer to any of these currencies, current rates may provide a good opportunity to secure funds.

The US Dollar has lost ground following poor GDP figures yesterday which came in below expectations and poor unemployment figures.  The US currency has benefited from risk aversion recently where investors have purchased dollars as a safe haven investment because of the problems in Greece and the know on effect to bond, and equity markets.

Despite serious concerns being raised over Greece again yesterday (see my post 26/5/11) the Euro has stabilised today and made gains on the pound and US Dollar.  Clients looking to sell Euros may want to take advantage of this positive moment. If you have a requirement over the  next week or so, it’s worth considering the negative impact that recent problems in Greece Portugal and Italy have had.  We could see further single currency weakness in the days ahead.

Sterling Euro Spike – gains for the pound today

Sterling euro exchange rates are closing in on the 1.16 interbank level today, following comments from ECB Economist Otmar Issing who said that Greece is ‘insolvent’.

This has weakened the euro and seen flow into the British pound.  Couple this with poor GDP figures from the US – further reducing the chance of an already slim interest rate hike in the states.  The pound has benefitted in flow from USD to GBP as well and is up half a percent in trading today.

The pound has made good gains against a number of other currencies as well including the New Zealand Dollar GBPNZD, Canadian Dollar GBPCAD and Mexican Peso GBPMXN.  If you have a currency requirement in these or any other currency pair, contact a specialist dealer by filling in the form on the right.  The currency dealer will be able to explain how you can save money on your transfer and benefit from the very best exchange rates.

Sterling losses across the board this morning

The pound has endured a poor start to trading this morning taking losses vs. the Euro, Aussie Dollar, Kiwi Dollar and Swedish Kroner to name just four.

This movement comes despite Public Sector Net Borrowing figures coming in better than expected this morning.  It appears that the markets are focusing on other factors such as the ‘risky nature’ of the pound at present.   Stock markets dropped yesterday on concerns over a Greek debt restructuring and this has moved investors away from risky assets like the pound and into safe have currencies like the US Dollar.  Couple with this potential cost to the UK economy of the volcanic ash cloud coming over from Iceland, and the recent spike in the value of the pound could well be reversed over the coming days.

If you have an upcoming currency transfer and would like to see what specific forecasts are for your currency pair, fill in the enquiry form on the right to discuss your options with an experienced currency specialist.

Sterling flat in thursday trading

 The pound has remained relatively stable today with minimal movements on the market.  GBPUSD rates remain close to 2 month lows, and we’ve seen large volume trades from the greenback to sterling as clients look to maximise returns on this transfer.

There is a lack of  sterling focused economic data on the market tomorrow, so we could see speculation drive rates GBP rates.  We do have German inflation data out at 09:00 and Canadian consumer price index data (inflation) out at 12:00.  if you are looking to move Euros or CAD, one of PSF’s specialist brokers will be able to assist, so fill in the form on the right for more information.

Overall I’m expecting UK based analysts to be focusing on GDP data out next Wednesday. This may shed some light on the likelihood of an interest rate hike in the UK currently priced in on consensus, for November.

Sterling exchange rates fall after Bank of England minutes

The pound has lost a little ground across the board this morning, after the Bank of England minutes have been released showing no change in voting.  This reduces expectaion of interest rate hikes in the UK, typically a rate hike would strengthen the pound, so this is not great news for sterling.

Unemployment figures released at the same time showed slightly better figures than expected, in all areas except claimant count which came out above expectations.

This movement could continue this morning, but rates this afternoon will depend very much on US mortgage applications at noon (UK time) and the Federal Open Market Committee meeting this evening.  This determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth, therefore, it can cause volatility.  The US have been slow to address budget deficit issues, so in theory if no reference is made to some sort of solution, the USD could weaken.

On the euro side of things focus and concerns on the debt issues in Greece and Portugal appear to have subsided (or been brushed under the carpet with another bailout – depending on your personal interpretation).  Any new issues could cause EUR weakness, but at present the single currency appears to be holding relatively firm across the board.

For more information on any of the topics or data discussed in this report, you can contact the author Aidan Meikle, directly at ajm@currencies.co.uk .

Sterling rebounds in afternoon trading after poor houseprice figures

The pound spiked on Friday last week following rumors that Greece may be pulling out of the Euro.  This prompted wide spread movement away from the single currency and into other assets including the pound.  Sterling strengthwas short lived as the Greeks were quick to deny that any discussions regarding the single currency had taken place.  This lent some support to the euro.

Any improvement in GBPEUR was reduced further this morning when Halifax house price figures were released showing a 1.4% fall in the value of UK homes.  As the UK is so reliant on the property sector this immediately rocked the pound.   At 09:30 EU confidence figures came out worse than expected, however the euro held up as the news from Greece seemed to be overriding the negative data.

This afternoon the pound has reversed this mornings losses vs. the euro with interbank levels hitting 1.1423 close to highs over the last month.

How sterling exchange rates may move looking ahead

The pound has had a dire day (Tuesday 3rd May) with sterling falling 0.71% against the USD, 1.12% against the Euro and half a percent or more against all other majors.

The main driver for this weakness is the much discussed interest rate outlook for the UK. PMI (inflation) data today showed a fall and further fuels speculation that we may not see an increase in the base rate until the later part of the year.

There is also a degree of uncertainty for investors following the killing of Osama Bin Laden. The terrorist leader was shot by American special forces and fears of retaliation attacks are weigh slightly on risky assets like the pound. Looking further ahead we could see further issue for sterling. While it is impossible to predict, a terrorist attack in the UK could be highly detrimental to the currency. Although obviously this would not be our first concern, it may be worth considering the implications for the pound should such events transpire.

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