Forex Coffee

Sterling hurled lower

wdetsinyi — Wed, 22 Feb 2012 14:00:59 +0000

After the more dovish BoE minutes this morning, sterling has continued to soften, breaking below the 1.57 level against the dollar - marking a new low for the year vs. the single currency. The main surprise was that two members of the Monetary Policy Committee voted for a GBP 75bln increase in bond purchases under the Bank’s QE program. The extent of the sterling reaction reflects the fact that markets were wrong-footed, thinking that if anything the Bank was perhaps a bit more cautious on the need for further stimulus.

Buy the hype, sell the type

wdetsinyi — Tue, 21 Feb 2012 11:49:03 +0000

A bastardisation of the ‘buy the rumour, sell the fact’ expression, but nonetheless entirely accurate in this instance. Since the Brussels bureaucrats penned the Greek deal at around 4:00am this morning, the smart money has emerged as a seller of the single currency specifically and risk assets more generally. On three separate occasions the euro has tried to penetrate the 1.33 level, only to be thwarted by determined sovereign wealth fund-sellers each time.

Public sector involvement potentially worthless

wdetsinyi — Tue, 21 Feb 2012 11:10:08 +0000

The big focus in recent weeks has been the private sector involvement in the latest Greek aid package, but it’s the part played by the public sector (governments and central banks) that is far more interesting but also concerning. At the time of the first bailout back in 2010, interest rates applicable to lending, whilst below market rates, were still designed to be being punitive. Now, with rates lowered again as part of this package (by 1.5% for 5 years and beyond), some contributors will actually make a loss on such loans.

Beware the Greek hype

wdetsinyi — Mon, 20 Feb 2012 12:04:11 +0000

It has been quite a remarkable morning for the single currency, which is up 1% at 1.3250. Contributing to this latest spike is the dollar’s weakness across the board as it loses favour during this spurt of risk appetite. Other high-beta currencies such as the AUD, Kiwi and the NOK are also around 1% higher today. Once again, short-covering by hedge funds and traders has been a major factor behind today’s euro buying. In addition, the euro has benefitted from optimism that European finance ministers will get awfully close to finally signing an agreement on a second Greek bailout package.

Equity bulls cheer despite Greek worries

wdetsinyi — Fri, 17 Feb 2012 11:34:01 +0000

It is an old cliché but an apt one nevertheless – equities around the world continue to climb the wall of worry, gradually setting to one side concerns about Europe, Greece and global growth. Instead they are choosing to focus on the positive growth surprises that are emerging, especially in the United States. Consider the news out of the US just in the past couple of days: initial jobless claims fell to a new four-year low, housing starts are up 35% since February of last year and manufacturing is showing more signs of strength.

UK consumers respond to price discounting

wdetsinyi — Fri, 17 Feb 2012 10:41:35 +0000

Encouraged by very aggressive price discounting on the high street, UK consumers have been prepared to open their wallets selectively over the past couple of months. In January, retail sales volumes (ex. fuel) jumped 1.2%, after a 0.6% increase in the final month of last year. Demand for household goods surged nearly 5% in the latest month, although a similar cumulative decline was recorded over the previous four months. As such, it could reasonably be argued that massive price discounts unleashed some pent-up demand. For instance, household goods prices fell 0.9% in the latest month.

Yen weakness will please Tokyo immensely

wdetsinyi — Fri, 17 Feb 2012 09:53:15 +0000

No doubt policy officials in Tokyo will be very pleased with the weakness of the currency so far in February. USD/JPY started out this month threatening to break down below the 76 level. There was much gnashing of teeth and threats of mass intervention from government ministers, a realistic prospect given the huge war-chest the BoJ has at its disposal. However, since then the yen has weakened consistently, and is now above 79.

A deepening hole in Portugal’s labour market.

wdetsinyi — Fri, 17 Feb 2012 09:09:53 +0000

With the economy still in the midst of a terrible recession, it is no surprise that labour market conditions continue to worsen rapidly. In the final quarter of 2011, the unemployment rate jumped to 14.0%, up from 12.4% in Q3, and 11.1% a year earlier. The economy contracted sharply in Q4, by 1.4%, a decline of 2.7% in YoY terms. According to the European Commission, the economy will contract by a further 3% this year. Unfortunately, fiscal austerity comes at a huge price when attempting to rectify both heavily indebted balance sheets and a competitiveness problem simultaneously.

A very dangerous war of words

wdetsinyi — Thu, 16 Feb 2012 12:43:06 +0000

Symptomatic of the huge political and financial stakes involved in the Greek debt impasse is the war of words between politicians in Greece and northern Europe. At such an incredibly sensitive and critical time, a verbal escalation is understandable on the one hand, but also very dangerous on the other.

China’s flight from the dollar

wdetsinyi — Thu, 16 Feb 2012 10:37:24 +0000

Increasingly apparent is China’s preparedness to reduce its exposure to the dollar and the obligations of the US government. In the year to December, foreign exchange reserves in China rose by USD 330bln to USD 3.18trln. Over the same period, Chinese holdings of US treasuries fell by USD 60bln to USD 1.1 trln. China’s political leaders have made clear in the past their concerns regarding the direction of US fiscal policy and the massive financial liabilities being taken on by the US government.