Reasons of change

[SantiSuk]

The extract below from a UK Foreign Currency Dealer's newsletter of today focuses on the relationship between Sterling and the Euro.

But I have noticed that sterling has also moderately spiked in the back half of last week against the baht. I use HSBC's rates to monitor when is a good time to bring spending money across from the UK and I will be watching the rates very closely early next week.

HSBC's rate on Friday was 48.87. Their rate has spent many months of this year in the 46.5 to 47.5 region, though it did spike to 49.3 on 28 April and I managed to hit that for a few months of expenditure. Last year I managed to find spikes in the 50.8 to 51.3 area.

I am no currency specialist and would not touch currency speculation with a barge pole, but if you have the time you can monitor every 2 or 3 days and increase your baht income by the order of 5 to 7% against the strategy some probably use of 'need money - quick send me some'.

You do of course need to be in the camp that says we 'aint going back to the glory days of exchange rates in the mid 50s plus. read the comment emboldened below if you think otherwise

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We thought now was a good time to update you on some significant sterling movements; it definitely looks a strong ‘sell’ after its climb this month. GBP/EUR hit a two and a half month high at €1.16 (interbank) yesterday, and remains at a strong trading level above €1.1550 this morning. Greek debt concerns have really weighed on the single currency this month and sterling is outperforming. A Greek resolution will in all likelihood be reached in coming weeks, which could see this pair head back down towards €1.11.

The pound is fundamentally a very unappealing currency; the UK recovery is looking very sluggish indeed, to the extent that the market is not pricing in a Bank of England rate rise until February 2012. Contrast this with a highly likely July ECB rate rise, and there really is potential for GBP/EUR to pull back when the market shifts refocuses on interest rate differentials.

While this pair may have a little more upside in the short-term, these are extremely volatile trading conditions and levels well above €1.15 represent a very decent opportunity to take some profit. Those looking to buy their euros should consider doing so now after sterling’s recent rally, particularly with Asian investors still looking very enthusiastic to buy the euro on dips.

[12DrinkMore]

FWIW I would tend to agree with the article.

The UK economy is likely to remain in the doldrums for the next couple of years. The latest ONS forecast on the UK economy growing at some couple of percent was based on consumer debt growing by 35%, this is, IMO, totally unrealistic, the peeps are and will be paying off debt for a while yet.

The EUR has been hit by the blasted PIGS, Greece is now starting year 2 of its three plan to pull itself out of the mess it is in, and I suspect the Germans will stump up the cash to keep things running, provided the Greeks keep meeting the targets (more or less, they are Greeks after all). They are finally even starting another three plan to actually tax the Greeks, or rather, go after the tax that the Greeks are somewhat reluctant to pay. The German economy is going great and, as they are, as a nation, utterly paranoid when it comes to any inflation, I also expect the EUR interest rates to rise much quicker than the blinkered Merv will raise them in the UK.

The Thai economy is also going great

http://www.bloomberg.com/news/2011-05-27/thailand-core-inflation-may-reach-3-by-september-atchana-says.html

and I also think that Thailand will continue to raise interest rates and also let the currency appreciate in step with other Asian countries in order to keep the inflation rate down. This whole re-balancing of the global economy, which has to be done through the exchange rates, will tend to favour the Asian currencies long term, whilst the western currencies will do a little dance with each other depending on where the current bad news is seen and how the speculators react.

I can't see any reason why the GBP should head up much higher from here. But currencies are notoriously difficult to forecast.

[cardholder]

I have never really seen 48. something to 49. something as a "roll"

Edited May 28, 2011 by cardholder

[inthepink]

FWIW I would tend to agree with the article.

The UK economy is likely to remain in the doldrums for the next couple of years. The latest ONS forecast on the UK economy growing at some couple of percent was based on consumer debt growing by 35%, this is, IMO, totally unrealistic, the peeps are and will be paying off debt for a while yet.

The EUR has been hit by the blasted PIGS, Greece is now starting year 2 of its three plan to pull itself out of the mess it is in, and I suspect the Germans will stump up the cash to keep things running, provided the Greeks keep meeting the targets (more or less, they are Greeks after all). They are finally even starting another three plan to actually tax the Greeks, or rather, go after the tax that the Greeks are somewhat reluctant to pay. The German economy is going great and, as they are, as a nation, utterly paranoid when it comes to any inflation, I also expect the EUR interest rates to rise much quicker than the blinkered Merv will raise them in the UK.

The Thai economy is also going great

http://www.bloomberg...chana-says.html

and I also think that Thailand will continue to raise interest rates and also let the currency appreciate in step with other Asian countries in order to keep the inflation rate down. This whole re-balancing of the global economy, which has to be done through the exchange rates, will tend to favour the Asian currencies long term, whilst the western currencies will do a little dance with each other depending on where the current bad news is seen and how the speculators react.

I can't see any reason why the GBP should head up much higher from here. But currencies are notoriously difficult to forecast.

Mervyn King is not in the least blinkered. How can you say that the UK economy will be in the doldrums for the next couple of years and then complain that the governor of the BOE will be too slow to raise interest rates? It would be a pretty silly idea to raise interest rates if the economy is not expanding sufficiently. You seem a little confused.

[12DrinkMore]

Mervyn King is not in the least blinkered. How can you say that the UK economy will be in the doldrums for the next couple of years and then complain that the governor of the BOE will be too slow to raise interest rates? It would be a pretty silly idea to raise interest rates if the economy is not expanding sufficiently. You seem a little confused.

Merv is way past his sell by date.

He did nothing to stop the Great British Housing bubble, when interest rates should have been much higher. He was blinkered because he refused to see the future damage that was heading along as consumer debt in the UK spiraled up.

He has two remits.

1. To hold inflation at 2% (in itself basically a constant devaluation of the GBP), which he has failed to do as his main focus is on remit #2

2. To keep the banking infrastructure working.

And in doing this he has not allowed the house price bubble to collapse and not allowed the insolvent banks to fail, brushing capitalism aside, he has now socialised the debts that the banks incurred across the UK population. Whether you see excessive house prices as negative or positive depends on your situation. Fundamentally housing should be affordable and adequate to allow the working population to have a roof over their heads and not be viewed as some source of endless riches once you are "on the ladder".

He is not responsible for the GDP.

That is the realm of Osborne and Cameron.

IMO the model is that Merv should provide a stable platform of 2% inflation and a functioning banking system on which the politicians can manage the economy. Obviously the whole lot is closely interrelated, but Merv has failed.

He failed to see the housing bubble and failed to see the effect of debt deflation.

Blinkered is the word.

[inthepink]

If you compare the actions of Merv with Trichet and helicpoter Bernanke I think he looks the sanest of the 3.

The housing bubble was certainly not a UK only problem and there is a huge amount of deleveraging going on in the Western world at the moment so I don't think that he can be accused of being any more blind than his counterparts in Europe and the USA on that point.

What I don't understand is that in this thread you say you don't think he will raise interest rates quickly enough because he is blinkered, but in another thread you say that you don't believe that interest rates have any effect on inflation. If you truly believe that raising interest rates has no effect on inflation then why are you so keen for the BOE to do this? Andy why are you saying that Thailand will use interest rates to control inflation if you don't believe that raising them helps?

To the OP - I'd be very wary of following any tips that you read in a currency dealer's newsletter. They have their own books to think about and their "advice" is rarely impartial. Secondly, they have no more clue about long-term exchange rates than anybody else.

Edited June 1, 2011 by inthepink

[neil324]

Sterling on roll, it's just noise,

http://www.tullettprebon.com/announcements/strategyinsights/notes/2010/SIN20110526.pdf

[honkytonklagoon]

There is a lot of uncertainty about. I watch news channels all day and yesterday alot of people were saying the BOE will raise rates in August for sure.

I think we are in line for a couple of small rises this year, I hope!

[inthepink]

Sterling on roll, it's just noise,

http://www.tullettpr...SIN20110526.pdf

An uptrend that has lasted for over a year, from around 1.4227 to a recent high of 1.6745 (a 17% increase) is just noise?

I agree that it isn't sterling on a roll, it's a general reaction to US monetary policy, but it certainly isn't noise.

Edited June 2, 2011 by inthepink

[meatboy]

sterling on a roll,dont make me laugh,glory days ex.rate mid 50s, 1997ex.rate 90s,2006 ex 70s,2008 ex mid 60s.