Two events roiled the currency market this morning. First, the GDP numbers out of many European economies were weaker than expected. The softness of European economic activity has stirred the complacency of recent buyers of EUROs and caused some unwinding of the EUR/YEN and EUR/GBP cross rates. The second event that unnerved recent buyers of EUROs was a comment by the ECB Governor from Portugal, Vitor Constancio. It was reported that Mr. Constancio said in response to recent Euro strength that “… negative rates always possible.”
Posts Tagged ‘EUR/GBP’
Tomorrow the Bank of England (BOE) and European Central Bank will grace us with their interest rate announcements. The BOE is expected to hold overnight rates at 0.5% and to keep the QE program at its present level of 375 billion pounds. The current weakness in the British pound will keep Governor Mervyn King from tampering with present policy, and, with a new Governor of the BOE in July, it makes no sense to expend any type of easing before the change of leadership unless some new crisis emerges. Current BOE policies and renewed weakness in the British economy have driven the EUR/GBP rate to 15-month highs, thus putting the pound in the middle of the “currency wars.”
Tomorrow the BOE and ECB will release their interest rate intentions. The Bank of England is expected to keep the funding rate at 0.50% while moving to increase the ASSET PURCHASING FACILITY (QE BY ANY OTHER NAME) by another 50 BILLION POUNDS to a level of 325 BILLION STERLING. The recent speeches from the Monetary Policy Committee have had a DOVISH bias, prompting the consensus view for an increase in the QE program.
While the mainstream media desires to fill time it seems that Iowa has become less important this year as a barometer of the national mood. The agrarian sector of the economy is very healthy and with their stomachs full, the people of Iowa can ponder and think and be much more philosophical in terms of candidate selection. Rick Santorum can play to the high-mindedness of the social conservative agenda because in Iowa those voters have two loaves of bread under each arm. It is much tougher to be concerned about the ideological nature of life when you are fighting in a line to pick up an unemployment check or applying for a job.
Thursday, DECEMBER 8 will it be a day that lives in INFAMY. The Bank of England will be the first mover tomorrow morning as the BOE announces its interest rate policy at 6:00 CST. It is expected that Mervyn King will direct the MPC board to keep rates steady and to keep the QE program at its present 275 BILLION POUNDS. At 6:45 CST the ECB will announce what it plans to do amidst the turmoil. Most analysts expect a 25 basis cut as Mario Draghi undoes the second inane rate increase promoted by Trichet. The more important factor will be if the ECB announces some type of ECB large-scale asset program in an effort to mirror the FED and BOE.
This Thursday and Friday the European Union had hoped to put the finishing touches on the European Stability Mechanism that will go into effect in 2013. The Sarkozy/Merkel-crafted plan would give succor to Chancellor Merkel ahead of this Sunday’s elections in Baden-Wurttemberg and hopefully halt the German voters’ antipathy toward all things EU. However, there appears to be friction between the giants of the European Union. Sarkozy is reportedly furious at the Germans for abstaining on the UN vote to impose a no-fly zone in Libya. Also, the French believe that Frau Merkel played politics and an anti-French card by moving to halt electricity production at seven NUCLEAR POWER plants, thus making the French look bad as well as having the impact of driving up electricity prices.
“EVERYBODY HAS A STRATEGY UNTIL I HIT THEM”
Today as Gordon Brown departed the scene, the Tories and Libs agreed to terms and will form a coalition after reaching a compromise regarding some contentious issues. Last week we wrote that hung Parliaments are not by definition bad outcomes. Stalemate forces compromise and often the result is more pragmatic policies and better solutions to difficult problems. In times of national emergencies, wide ranging political groups join together to promote the national good and the results are often successful as the nonsense of petty politics gives way to serious governance.