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’
Notes From Underground: A “Portuguese Man of War” Enters Draghi’s Harbor and Fires a Shot
February 14, 2013Notes From Underground: Hollande and His Big Mouth
February 6, 2013Tomorrow 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.”
Notes From Underground: Draghi Takes Center Stage; Will Mervyn King Pump Up The Volume?
February 8, 2012Tomorrow 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.
Notes From Underground: The Meaninglessness of IOWA and Other Thoughts
January 4, 2012While 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.
Notes From Underground: ECB DAY IS HERE-A GUIDE FOR THE PERPLEXED
December 7, 2011Thursday, 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.
Notes From Underground: Franco/German spat ahead of this week’s SUMMIT of LOVE
March 23, 2011This 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.
Notes From Underground: ENGLAND GROWS AND BIG BEN’S FED MAY SHRINK
October 26, 2010
The best quote to describe today’s market action after the more robust British GDP numbers comes from the column in the London Telegraphby Jeremy Warner. It is an apropos comment that the FED and all policy makers should take to heart and it comes from that master wordsmith, Mike Tyson:
“EVERYBODY HAS A STRATEGY UNTIL I HIT THEM”
Today, the markets got hit from the British GDP number and it might have sent Britsh and possibly U.S. quantitative ease reeling to a later time. The market consensus was for a 0.4 percent increase while the actual number printed at 0.8 percent–double the predicted release. The British pound had been trading very soft against the world’s currencies making the highest high since the first quarter yesterday. The EUR/GBP cross, which reversed off the highs of Monday, immediately droppped another 1.5 percent, closing around 0.8750.
The FOOTSIE also was sold as British interest rates moved higher on the better economic data, with the 10-year GILT gaining 15 basis points. Until today the market had convinced itself that the Brits were following the FED into a new round of QE as the British economy remained mired in tepid growth and the Cameron government was embarking on an austerity budget program. The more robust GDP number may mean that the new round of QE may not be needed or that the BOE under Mervyn King may take a wait-and-see approach.
The depreciation of the POUND has given ENGLAND some economic relief as British goods have become much more competitive within the European Union. As Cameron has reminded the markets, the brunt of British trade is within the EU and since the beginning of 2007 the British currency has dropped 33 percent against its major trading partners. Now the question arises: Why does the British GDP have possible significance for the Bernanke FED? The quick answer is that the FED policy wonks openly admit that they are in unchartered waters in the QE realm and really don’t know the impact that all this liquidity enhancement will have upon the economy.
The huge buildup in the FED‘s balance sheet is unprecedented so there is no historical basis on which to rely. Some of the most dovish FED board members admit this. We ask if it would not be better to proceed slowly now that global growth may be picking up and the global equity markets are pointing to better growth ahead. Yes, I know that the EQUITIES are being lifted on a pool of liquidity and may not mean that the growth is sustainable. But that is why it may be better to hold some QE for a later date.
A reader of ours, KM, maintains that it may be better to invoke a type of POWELL DOCTRINE–come with everything you got–but we wonder if it is better to hold back reinforcements in case of another downturn. Let’s remember that five months ago Bernanke and company were on the center stage discussing ways to remove the QE. By August we were back looking for new ways to enhance QE while the FED began reinvesting all the MBSs that had been rolling off. This shows that the FED has gotten it badly wrong recently and they be in the middle of another possible misstep. If the economy were to turn up faster than recent FED missives have predicted the FED could really be in a terrible bind as it moves to retract an enormous amount of money from the system.
The FED meeting of next week will bring high market volatility for the conventional wisdom has been for a dynamic QE move by the FED. New York FED President, DUDLEY, openly stated that a 500 billion QE add would be the equivalent of a 50-to-75-basis-point ease. How he knows that I don’t know but it must emanate from one of his beloved models. The FED has the cover of the recent S&P and equity rally to stay its hand. Yes, the stocks, bonds and commodities will sell off but it will be a good test of where all these markets will find support when left on their own without more FED injections. BEN BERNANKE it is time to test the waters to see if the previous bouts of stimulus have had any real success before you dig the HOLE DEEPER. While markets are an important source of FEEDBACK, policy makers cannot be held captive to the talking heads and the wall street money machine. WHAT SAY YEA BEN?
Notes From Underground: For London it was the best of times and the worst of times
May 12, 2010Today 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.
