Greek opinion polls give the market some hope
The euro was given some relief in early Monday trading by the positive news that in Greece, the conservative and pro-austerity party - New Democracy – has edged ahead of the anti-bailout party Syriza in the opinion polls. If New Democracy can hang on to their lead and re-establish a pro-bailout, pro-austerity and pro-euro coalition, then fears of a Greek exit should subside. Judging by the euro’s brief and fairly minor bounce since the weekend though, the market remains understandably cautious.
Concerns over Spain are also growing, as the country’s ten year bond yields climb towards 6.50%, bringing into view the dangerous 7.0% benchmark which forced other peripheral nations, like Portugal and Greece, into requesting bailouts. Spain’s fourth-largest lender Bankia requires a bailout and the Spanish region of Catalonia is also in need of help to refinance its debt. Consequently, the risks of a Spanish sovereign bailout are increasing, which would create a huge amount of stress on the EU’s aid resources, as well as raising major question marks over Italy.
In addition to these mounting Spanish concerns, growth data from the eurozone was all pointing the wrong way last week. Figures from the German, French and eurozone-wide services and manufacturing sectors almost all disappointed, suggesting that the eurozone’s avoidance of economic contraction in Q1 will prove temporary.
With respect to the issue of Eurobonds, Germany doesn’t look like it will budge. What’s more, Austria, the Netherlands and Sweden have joined Germany in expressing their opposition to the idea of common eurozone bonds, so market hopes for a silver bullet have once again been quashed.
US GDP figure should confirm slowdown
This week brings two important growth figures from the US, in the form of the revised GDP estimate for the first quarter of 2012 (due on Thursday). The figure is expected to be revised down from 2.2% to 1.9%, well off Q4 2011’s impressive quarterly reading of 3.0%. Friday brings the monthly update from the US labour market and improvements in this area are expected to be moderate at best.
The US dollar’s safe haven status has very much come to the fore in the past month. Clearly ongoing softness in US figures keeps QE3 on the table as far as the Fed is concerned but we see safe-haven demand helping it appreciate further across the board. In particular, we foresee heavy losses for EUR/USD in the second half of this year, which will inevitably drive GBP/USD lower too.
Sterling is trading up above €1.25 this afternoon, with the positivity surrounding the Greek opinion polls already having dissipated. Sterling weathered some awful data last week, including a downward revision to the UK’s Q1 GDP figure to -0.3% and a steep drop in the domestic inflation rate. However, sterling’s safe-haven status still looks likely to push it even higher against the euro.
In contrast, sterling is always going to be under pressure against the US dollar. It should benefit from a minor short-covering bounce soon, though a return anywhere close to $1.60 looks a stretch now. Risk appetite away from the US dollar is likely to be hard-pushed to return in force ahead of the June 17th Greek elections.
End of week forecast
GBP / EUR 1.26
GBP / USD 1.5750
EUR / USD 1.25
GBP / AUD 1.6050
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Showing posts with label safe-haven. Show all posts
Showing posts with label safe-haven. Show all posts
Monday, 28 May 2012
Tuesday, 24 April 2012
Caxton FX Weekly Round-up: Sterling Rallies
IMF boost emergency fund by $430bn but EUR remains pressurized
The weekend’s IMF and G20 meetings produced some real progress in the form of a combined $430bn of additional loans, to be used in the event of a deterioration of the eurozone debt crisis. Good news then, but Spanish 10-year bond yields are trading around the dangerous 6.00% level, and Italy’s equivalent debt is yielding 5.75% today, so it clear that the market remains characteristically skeptical.
The French presidential elections have increased the pressure being felt by the euro in recent sessions. Socialist candidate Francois Hollande received the most votes in the weekend’s initial round of voting and the euro, as well as European equities, has declined as a result. The final election will be held on May 6th and this political uncertainty is likely to weigh on the single currency in the meantime. The markets would probably prefer Sarkozy to remain in power, thus reducing the risk of a breakdown in cooperation between France and Germany on dealing with the debt crisis. Fresh concerns have also sprung up with respect to the Netherlands, which is likely to hold elections in light of the government’s collapse after failing to agree measures to slash its budget deficit.
As well as the weekend’s political concerns, the markets have had to digest some further disappointing eurozone economic data. A German manufacturing growth figure hit almost a three year low and figures out of the eurozone as a whole were equally alarming.
MPC's Posen gives sterling a boost
Sterling enjoyed a staggeringly strong week last week and has started the current one where it left off. MPC policymaker Adam Posen provided the main catalyst for the rally, with the minutes from the MPC’s April meeting revealing that he did not vote for further quantitative easing. The market may have got ahead of itself in pricing out the likelihood of further BoE quantitative easing. Posen may well have voted for no change due to the recent uptick in inflation and may have just preferred to see the current round of QE run its course (which it will have done by time of the MPC’s next meeting in early May). More monetary easing from the BoE is still a distinct possibility if UK inflation eases in the second half of the year and economic growth remains stagnant.
UK Q1 GDP figure to show some growth, albeit scant
Wednesday brings the release of the first quarter UK GDP figure. After last week’s excellent UK retail sales figure, we are fairly confident that we will not see another quarterly contraction. Estimates are falling around the 0.1% growth level, which is indicative of the uncertain footing from which the UK economy is building. Nonetheless, news that the UK has avoided a technical recession will be welcome (though the risks of disappointment are not insignificant).
Sterling is trading at almost a six-month high of $1.6150 at present and we continue to view these to be excellent levels at which to sell the pound. The Fed is likely to be more hawkish in its communiqué this week, whilst the US GDP figure is also likely to be impressive, which could well help the US dollar bounce back. Sterling is trading at almost a two-year high against the euro above €1.2250 and further gains are looking likely, though we may see upward progress stall as nerves kick in ahead of Wednesday’s GDP figure.
End of week forecast
GBP / EUR 1.23
GBP / USD 1.6050
EUR / USD 1.3050
GBP / AUD 1.5750
Richard Driver
Currency Analyst
Caxton FX
The weekend’s IMF and G20 meetings produced some real progress in the form of a combined $430bn of additional loans, to be used in the event of a deterioration of the eurozone debt crisis. Good news then, but Spanish 10-year bond yields are trading around the dangerous 6.00% level, and Italy’s equivalent debt is yielding 5.75% today, so it clear that the market remains characteristically skeptical.
The French presidential elections have increased the pressure being felt by the euro in recent sessions. Socialist candidate Francois Hollande received the most votes in the weekend’s initial round of voting and the euro, as well as European equities, has declined as a result. The final election will be held on May 6th and this political uncertainty is likely to weigh on the single currency in the meantime. The markets would probably prefer Sarkozy to remain in power, thus reducing the risk of a breakdown in cooperation between France and Germany on dealing with the debt crisis. Fresh concerns have also sprung up with respect to the Netherlands, which is likely to hold elections in light of the government’s collapse after failing to agree measures to slash its budget deficit.
As well as the weekend’s political concerns, the markets have had to digest some further disappointing eurozone economic data. A German manufacturing growth figure hit almost a three year low and figures out of the eurozone as a whole were equally alarming.
MPC's Posen gives sterling a boost
Sterling enjoyed a staggeringly strong week last week and has started the current one where it left off. MPC policymaker Adam Posen provided the main catalyst for the rally, with the minutes from the MPC’s April meeting revealing that he did not vote for further quantitative easing. The market may have got ahead of itself in pricing out the likelihood of further BoE quantitative easing. Posen may well have voted for no change due to the recent uptick in inflation and may have just preferred to see the current round of QE run its course (which it will have done by time of the MPC’s next meeting in early May). More monetary easing from the BoE is still a distinct possibility if UK inflation eases in the second half of the year and economic growth remains stagnant.
UK Q1 GDP figure to show some growth, albeit scant
Wednesday brings the release of the first quarter UK GDP figure. After last week’s excellent UK retail sales figure, we are fairly confident that we will not see another quarterly contraction. Estimates are falling around the 0.1% growth level, which is indicative of the uncertain footing from which the UK economy is building. Nonetheless, news that the UK has avoided a technical recession will be welcome (though the risks of disappointment are not insignificant).
Sterling is trading at almost a six-month high of $1.6150 at present and we continue to view these to be excellent levels at which to sell the pound. The Fed is likely to be more hawkish in its communiqué this week, whilst the US GDP figure is also likely to be impressive, which could well help the US dollar bounce back. Sterling is trading at almost a two-year high against the euro above €1.2250 and further gains are looking likely, though we may see upward progress stall as nerves kick in ahead of Wednesday’s GDP figure.
End of week forecast
GBP / EUR 1.23
GBP / USD 1.6050
EUR / USD 1.3050
GBP / AUD 1.5750
Richard Driver
Currency Analyst
Caxton FX
Tuesday, 13 March 2012
Caxton FX Weekly Round-up: US economy goes from strength to strength
Private creditors finally participate in Greek debt swap
Greece managed to convince 85% of its private creditors to participate in the long-awaited debt-swap deal. This was converted into 95% participation when the collective action clauses were triggered to force some creditors to sign up. The deal represents the biggest sovereign debt restructuring in history.
The euro suffered from a classic case of ‘buy the rumour, sell the fact’ after the debt swap deal was agreed. The International Swaps and Derivatives Association has classified the Greek debt exchange as a ‘credit event,’ in which $3bn worth of credit default swaps are triggered. This places plenty of financial uncertainty back on the table, though the banking system is better placed to deal with in light of the ECB’s liquidity measures (3-year LTRO’s).
It is fair to say that the market is certain that this debt-swap is not the last time we’ll see Greece occupying the headlines this year. Many players expect Greece to be back in bailout territory before the end of 2012, which explains the rather muted response to the latest development. With regard to the second Greek bailout, Eurogroup head Juncker has indicated that it will be signed off this week and should include a significant IMF contribution.
US jobs figures impress once again and the dollar benefits
227 thousand jobs were added to the US non-farm payrolls in February, another excellent showing that highlights the pace of growth that is accumulating in the world’s largest economy.
The market will also have been impressed to see February’s growth in the US non-manufacturing sector pick up to its fastest pace in almost a year. In a recent speech, US Federal Reserve Chairman Ben Bernanke seemed to respond to the upturn in US growth by omitting reference to further US quantitative easing, to which the US dollar has responded positively.
The week ahead brings a statement from US Federal Reserve (Tuesday evening). If further optimism surrounding the US economy is revealed (which seems likely) then sentiment towards the USD should remain positive. This afternoon should bring some strong US retail sales figures to support this.
The relationship between the US dollar and US economic data is an unpredictable one but at present the two are demonstrating a positive correlation. Later on in the week, we will see some monthly consumer sentiment and manufacturing figures, all of which are also expected to be strong.
Sterling is trading just below €1.1950. Anything below €1.19, or above 84p, is looking a little too rich for the euro, bearing in mind that economic fundamentals seem to be turning the corner in the UK, whilst the eurozone economy continues to deteriorate. We are still having to patient for the GBP/EUR to kick on past €1.20 but in the longer-term we are sticking to this forecast.
Sterling has suffered a major downside move against the US dollar in the past fortnight, falling from just below $1.60 to the current level just below $1.57. We continue to look for lower levels as the US economy streaks ahead and as other safe-haven assets such as the Japanese yen lose their appeal.
End of week forecast
GBP / EUR 1.20
GBP / USD 1.56
EUR / USD 1.30
GBP / AUD 1.4950
Richard Driver
Currency Analyst for Caxton FX
Greece managed to convince 85% of its private creditors to participate in the long-awaited debt-swap deal. This was converted into 95% participation when the collective action clauses were triggered to force some creditors to sign up. The deal represents the biggest sovereign debt restructuring in history.
The euro suffered from a classic case of ‘buy the rumour, sell the fact’ after the debt swap deal was agreed. The International Swaps and Derivatives Association has classified the Greek debt exchange as a ‘credit event,’ in which $3bn worth of credit default swaps are triggered. This places plenty of financial uncertainty back on the table, though the banking system is better placed to deal with in light of the ECB’s liquidity measures (3-year LTRO’s).
It is fair to say that the market is certain that this debt-swap is not the last time we’ll see Greece occupying the headlines this year. Many players expect Greece to be back in bailout territory before the end of 2012, which explains the rather muted response to the latest development. With regard to the second Greek bailout, Eurogroup head Juncker has indicated that it will be signed off this week and should include a significant IMF contribution.
US jobs figures impress once again and the dollar benefits
227 thousand jobs were added to the US non-farm payrolls in February, another excellent showing that highlights the pace of growth that is accumulating in the world’s largest economy.
The market will also have been impressed to see February’s growth in the US non-manufacturing sector pick up to its fastest pace in almost a year. In a recent speech, US Federal Reserve Chairman Ben Bernanke seemed to respond to the upturn in US growth by omitting reference to further US quantitative easing, to which the US dollar has responded positively.
The week ahead brings a statement from US Federal Reserve (Tuesday evening). If further optimism surrounding the US economy is revealed (which seems likely) then sentiment towards the USD should remain positive. This afternoon should bring some strong US retail sales figures to support this.
The relationship between the US dollar and US economic data is an unpredictable one but at present the two are demonstrating a positive correlation. Later on in the week, we will see some monthly consumer sentiment and manufacturing figures, all of which are also expected to be strong.
Sterling is trading just below €1.1950. Anything below €1.19, or above 84p, is looking a little too rich for the euro, bearing in mind that economic fundamentals seem to be turning the corner in the UK, whilst the eurozone economy continues to deteriorate. We are still having to patient for the GBP/EUR to kick on past €1.20 but in the longer-term we are sticking to this forecast.
Sterling has suffered a major downside move against the US dollar in the past fortnight, falling from just below $1.60 to the current level just below $1.57. We continue to look for lower levels as the US economy streaks ahead and as other safe-haven assets such as the Japanese yen lose their appeal.
End of week forecast
GBP / EUR 1.20
GBP / USD 1.56
EUR / USD 1.30
GBP / AUD 1.4950
Richard Driver
Currency Analyst for Caxton FX
Wednesday, 24 August 2011
Can the Bank of Japan's curb the yen's strength?
The Japanese economy is in recession, it is still recovering from a devastating natural disaster, Japan’s interest rate is at rock bottom and what is more, Moody’s has just downgrades Japanese debt. So why has the Japanese yen strengthened to record levels in recent weeks and months?
The answer is simple: the yen’s safe-haven status. The past six months have thrown up a huge amount of uncertainty in the financial markets. The Japanese earthquake disrupted international trade patterns, oil prices are sky high, global growth has slowed down, the eurozone debt crisis threatens the global banking system, and the US has had its debt downgraded and could be heading into another recession.
What do investors do in this climate? Head out of riskier assets such as commodity-linked currencies and equities, and into traditional safe haven assets such as government bonds (such as UK or US, not Greek!), gold, and the yen and swiss franc. The fact that the Japanese economy is struggling matters not a jot, the yen’s safe-haven status trumps all.
Turmoil in the financial markets looks unlikely to let up any time soon; it will probably take months for a long-term solution to the eurozone debt crisis to emerge, not to mention the increasing likelihood of a US recession and further debt downgrade next year. So what can stop the yen from strengthening?
Certainly the Japanese government and the Bank of Japan are very uncomfortable with the yen at current levels. There has been much jawboning about intervention in the currency markets in order to weaken the yen. The Bank of Japan conducted some unilateral intervention on Aug 4th, injecting around $3bn into the Japanese economy. Going on the yen’s climb in the time that has passed, this was unsuccessful.
Japan has very recently announced a $100bn credit line to encourage domestic firms to sell yen and invest overseas. Japanese officials may be coming to terms with the fact that they cannot to disrupt the yen’s longer-term strengthening. Further intervention efforts can be expected however, if for no other reason than to slow the yen’s appreciation. 75 yen to the dollar may well be the next benchmark which triggers further action from the Bank of Japan.
Richard Driver
Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
The answer is simple: the yen’s safe-haven status. The past six months have thrown up a huge amount of uncertainty in the financial markets. The Japanese earthquake disrupted international trade patterns, oil prices are sky high, global growth has slowed down, the eurozone debt crisis threatens the global banking system, and the US has had its debt downgraded and could be heading into another recession.
What do investors do in this climate? Head out of riskier assets such as commodity-linked currencies and equities, and into traditional safe haven assets such as government bonds (such as UK or US, not Greek!), gold, and the yen and swiss franc. The fact that the Japanese economy is struggling matters not a jot, the yen’s safe-haven status trumps all.
Turmoil in the financial markets looks unlikely to let up any time soon; it will probably take months for a long-term solution to the eurozone debt crisis to emerge, not to mention the increasing likelihood of a US recession and further debt downgrade next year. So what can stop the yen from strengthening?
Certainly the Japanese government and the Bank of Japan are very uncomfortable with the yen at current levels. There has been much jawboning about intervention in the currency markets in order to weaken the yen. The Bank of Japan conducted some unilateral intervention on Aug 4th, injecting around $3bn into the Japanese economy. Going on the yen’s climb in the time that has passed, this was unsuccessful.
Japan has very recently announced a $100bn credit line to encourage domestic firms to sell yen and invest overseas. Japanese officials may be coming to terms with the fact that they cannot to disrupt the yen’s longer-term strengthening. Further intervention efforts can be expected however, if for no other reason than to slow the yen’s appreciation. 75 yen to the dollar may well be the next benchmark which triggers further action from the Bank of Japan.
Richard Driver
Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Tuesday, 15 March 2011
And its the Swiss Franc coming up on the outside...
Whilst Japan continues to dominate the headlines we have seen the yen and dollar strengthen as the markets chase the solace of safe-haven currencies. However, there is one very well-performing currency that may have crept under your radar- the Swiss franc, A.K.A the Swissie. Due to Switzerland’s economic, political and fiscal stability, the franc represents the third major safe-haven currency. Indeed the swissie has today climbed to its highest point against the US dollar in at least 40 years and is rallying against all its major counterparts, which illustrates its increasing popularity in these times of extreme market uncertainty.
However, just as the Japanese government is determined not to let the yen appreciate too strongly, the Swiss National Bank (SNB) has showed willingness to intervene. The bank intervened last year when it considered the swissie to be overvalued, and it could do the same again if the soaring currency threatens the country’s economic growth, having stated last December that it would “take measures necessary to ensure price stability.”
The Swiss government are concerned about maintaining the strength of its export sector, but a closer look reveals that despite currency appreciation, its trade surplus actually widened last month. In addition, last year’s intervention was broadly unsuccessful (as intervening often is) and cost the SNB $25bn. In light of this, and amid a healthy economy, it seems unlikely that the SNB will act any time soon, though one has to wonder how far they will allow their currency to appreciate. This will surely come to the point if Swiss growth were to slow down and safe-haven appeal remain strong.
Against sterling, the swiss franc has gained 5% over the last month with the rate currently at 1.47. But there is certainly room for further gains with the rate still some way from the 1.44 levels seen at the end of 2010.
In other news, investors looking for higher yields might, ironically, look to Quantitative Easing, racing at Cheltenham Festival on Thursday, people say he has a licence to print money...
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
However, just as the Japanese government is determined not to let the yen appreciate too strongly, the Swiss National Bank (SNB) has showed willingness to intervene. The bank intervened last year when it considered the swissie to be overvalued, and it could do the same again if the soaring currency threatens the country’s economic growth, having stated last December that it would “take measures necessary to ensure price stability.”
The Swiss government are concerned about maintaining the strength of its export sector, but a closer look reveals that despite currency appreciation, its trade surplus actually widened last month. In addition, last year’s intervention was broadly unsuccessful (as intervening often is) and cost the SNB $25bn. In light of this, and amid a healthy economy, it seems unlikely that the SNB will act any time soon, though one has to wonder how far they will allow their currency to appreciate. This will surely come to the point if Swiss growth were to slow down and safe-haven appeal remain strong.
Against sterling, the swiss franc has gained 5% over the last month with the rate currently at 1.47. But there is certainly room for further gains with the rate still some way from the 1.44 levels seen at the end of 2010.
In other news, investors looking for higher yields might, ironically, look to Quantitative Easing, racing at Cheltenham Festival on Thursday, people say he has a licence to print money...
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
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