We are having a hard time understanding why sterling is holding up so well,

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US Dollar exchange rate continued to gain against the euro rate to about mid-day yesterday in New York on the European bank story, but the power of the story had faded by the close. Overnight as Asia was handing off to Europe, some euro bulls tried a push to the upside, but it failed to go very far - only 1.2640 from the US closing low of 1.2556. Market News reports somewhat cryptically that "Early (euro) dips met with demand from a major German name and a semi-official entity, though this proved insufficient to halt further slippage as strong cable sales helped to drag euros to dollars lower." We take this to mean that the euro's bounce is merely a minor correction and doesn’t signal a change in sentiment.

Sterling is buffeted by opposing forces, including the Bank of England seeking permission to expand money supply to buy government paper and the minutes of the last meeting showing that the 50 bp rate cut would have been 100 bp if Blanchflower had had his way. The Policy Committee voted unanimously to ask for the power to carry out quantitative easing (buying government paper), which it is already doing - pretty darn fast for a government agency. We are having a hard time understanding why sterling is holding up so well, relatively speaking, in a flattish range of 1.4100 to 1.4300. It’s well off last week's weird high over 1.4600 but why is it not breaking 1.4000?

Evidently because the euro exchange rate looks worse.

The dollar/yen (and euro/yen) are highly controversial these days. Bloomberg reports that some foreign exchange analysts see 96 and others see 85 (whereupon we should expect intervention). We are following the chart, which shows Day 1 of an upside breakout. We switched the signal but are never really happy with a new signal until it surpasses the most recent extreme level, in this case the high of 94.64 from January 6. Considering that the Japanese economy is in the worst shape of all G7, the yen "should" be weak… but considering that there is probably a trillion of two still out in the world to be repatriated to Japan and plenty of risk aversion triggers to come, the yen could resume its uptrend on capital flows or perception that capital flows "should" be occurring.

Pounds to US Dollars = 1.4287
Pounds to Euros = 1.1330
Euro to Pounds = 0.8817
Pounds to Australian Dollars = 2.2390

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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ECB to cut rates - or Foreign Exchange Traders to sell Euros

Foreign Exchange Outlook : We get retail sales and various other bits and pieces of data today. We say the institutional landscape holds more importance for foreign exchange traders today. Bernanke gave a sane and reasonable speech yesterday that marks out the path forward—no surprise: more public money backing for banks. As noted above, Congress wants specific spending for homeowners and the Fed is not delivering that. To be fair, it's not the Fed's job to make a value-judgment spending decision like that with big fiscal implications. Still, the Fed and Congress are aggressive and activist, which is US dollar favorable, even if we have big doubts about the Treasury.

All eyes are on the ECB to see if it comes up to Fed standards, and so far the voting is that it does not. A Market News story yesterday says "ECB member opinions remain divided in terms of the magnitude of the cut (50 basis point cut or more/less) and there are still concerns about a rebound in inflation. Though deflation worries have crept in, many members of the Governing Council fret that inflation could sneak back into the picture over time if the bank is not careful with its monetary policy. One senior source stressed that if the ECB does cut rates, the central bank would not follow the U.S. lead and said, 'The two situations are different.' He said that it was 'possible' that the economy had already hit bottom. At the very least, 'things should not get worse,' he argued. 'The next six months will still be difficult for the real economy, then we'll see. It's difficult at this moment to make projections and premature to say what the ECB will do.'"

Well, no.

Such a view is 180 degrees away from the consensus view of private sector economists, nearly all of whom believe things are going to get worse before they get better. We have seen only one forecast of improvement before the second half of this year, and that’s for the US, not Europe. The comment from this unnamed "senior source" at the ECB reflects a mindset of denial and delay that has beset the ECB from the beginning. If the ECB does indeed cut by only 25 bp tomorrow - or not cut at all - the euro exchange rate will be punished. In fact, it looks like it would take a cut of 75 bp (the new whisper number) to overcome the refreshed dislike of the ECB that has emerged this week. Markets are rewarding activism - consider sterling last week.

We shall see if they punish ostriches.

We imagine the US Dollar exchange rate will recover smartly from the corrective pause/bounce and that new fretting and fussing over US deficits will fail to grip foreign exchange traders imaginations. That means the euro to us dollars exchange rate "should" fall under 1.3000, and this week.

Note to Readers: Next Monday, Jan 19, is Martin Luther King Day and a national holiday in the US. The market is closed and we will not publish any reports. The next day is the Obama inauguration, yippee.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
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Contact IMS Foreign Exchange + 44 207 183 2790

Foreign Exchange Outlook for the Pound Sterling

Foreign Exchange Outlook for the Pound Sterling : PM Brown has said monetary policy is not the only tool and it’s time to engage fiscal policy. The FT has a hysterical headline about Chancellor of the Exchequer Darling targeting the rich with a new 45% top tax rate to offset what will be massive government spending, together with a cut in the VAT of £12.5 billion to goose consumer spending. Darling presents a “pre-budget report” to Parliament today. Bloomberg says it will entail new bond issuance of £138.1 billion (an all-time high).

The NIESR says the UK economy will grow only 0.8% this year and will shrink by 1.5% in 2009 for 6 consecutive quarters of contraction. It recommends injecting around 10% of GDP into the banking sector (from 2.5% so far) and cut rates by 100 bp (or more). It advises a stimulus boost of £30 billion, or 2% Of GDP.

Pounds to Euros last 1.1720
Pounds to us dollars last 1.5098
Pounds to Australian Dollars last 2.3300

Bye For Now

Barbara Rockefeller Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

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UK interest rates need to fall a lot and need to fall soon to avert a deep and lasting recession

Bank of England policy member Blanchflower said UK interest rates need to fall a lot and need to fall soon to avert a deep and lasting recession. Blanchflower has been the sole voice on the MPC calling for rate cuts over the past year. He says growth will contract this year and next, with inflation falling to under 1% and perhaps even going negative - a wild statement in light of inflation at 5.2% in Sept. Blanchflower blames the Lehman bankruptcy for intensifying the credit squeeze. It has yet to really hit companies and households.

Blanchflower makes the most important comment with this: “The key economic policy over the last decade has been the unsustainable rise in asset and equity prices and the associated credit boom. Does mainstream theory have an adequate explanation of why things have gone so badly wrong? It is not clear that it does. It may well be time for a rethink.'' Chancellor of the Exchequer Darling agreed that upcoming stimulative actions can be taken without fear of igniting inflation.

In hard data, Nationwide reports UK house prices house prices fell by 1.4% m/m in Oct, for the 12th monthly drop and 14.6% y/y. The average UK house price is now £30,000 lower than it was a year ago but still around £30,000 higher than it was five years ago. We have no idea what this means.

Pounds to Euros Exchange rate to buy euros last at 1.2684

Pounds to Australian Dollars currently 2.4100

Pounds to US Dollars currently 1.6420

Buy for now

Barbara Rockefeller
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Buying Euro Pounds? Buy Euros at the Best Euro Exchange Rates visit IMS Foreign Exchange

Sterling tumbles as 'currency market tsunami' sweeps markets

Sterling tumbled another two cents against the dollar on Monday and weakened against the euro exchange rate as foreign exchange traders speculated the Bank of England may deliver an emergency cut in interest rates and as investor’s poured money into the US dollar.
By Rosie Murray-West and Jamie DunkleyLast Updated: 7:29AM GMT 27 Oct 2008
Full story visit The Telegraph

The pound to dollars fell to almost $1.56 in early trading and slid to almost 80p versus Europe's common currency as what one expert called a "currency market tsunami" continued to sweep the foreign exchange markets.

The weakness in sterling leaves the currency 13pc lower against the dollar this month alone as expectations that the UK economy is now facing a severe recession becomes the mainstream view. News on Friday the economy contracted 0.5pc in the three months to September sent the currency tumbling almost 9 cents at one point.

The increasingly bleak news from the economy is putting pressure on the Bank of England to cut interest rates before its schedule meeting next month.

Dr Lyons, chief economist at Standard Chartered, said: “The economic data available to us shows that the UK economy is crying out for a further cut in the rate of interest. Mervyn King’s comments last week suggest that the Bank of England will do that at its next meeting, but I think action needs to be taken immediately.

However he added: “I don’t expect this to happen, though, and think we will need to wait until the Monetary Policy Committee’s next meeting in November.”

Pounds to Euros currently 1.2400
Pounds to US Dollars currently 1.5418
Pounds to Australian Dollars currently 2.5283