Euro Pounds Currency Brief September 2007

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Northern Rock now owes £8bn to the BoE

Friday 28/09/2007 Interbank
GB POUNDS / EURO 1.4266

Pound:

Not much from the UK yesterday however we did see a small rally on the back of Nationwide housing data.

The Bloomberg headline appeared to be slightly misleading highlighting the data was ‘the strongest for 3 months’. In annualised terms it was the worst since early 2006.

This morning sterling has been soft from the get-go perhaps based on the opinions page in the FT which is calling for an October or November rate cut by the MPC. In addition the OECD is urging the committee to cut rates.

In other UK news Northern Rock borrowed and additional £5bn from the BoE taking the lending up to £8bn after the emergency £3bn funding a fortnight ago.

Euro:

Euro again looks set to rally after comments from ECB member Papademos said that rates in Europe were still on the ‘accommodative’ side and only saw a small impact from the recent credit crunch.

The FT reports that rising food and fuel costs will stoke the inflation fire in Europe taking the headline rate above the 2.0% ECB target forcing the bank to increase rates.
Plenty of inflation data is due out today so we could begin to see a pickup.

General News:

• The Chinese economy is on target to expand by 11.6% in 2007, the highest since 2004 which will push inflation up to 4.6%. The target inflation rate set by the PBOC is 3.0%. The Chinese government have banned banks lending to property developers in a move to keep prices down for migratory workers.

• Oil posted big gains yesterday on the back of a slightly weak dollar and demand driven by the onset of winter requirements. With Tropical Storm Lorenzo approaching the Mexico Gulf coast texas gold should stay well supported today. This morning we are trading at $82.23.

Thursday 27/09/2007 Interbank
GB POUNDS / EURO 1.4294

Nationwide house price rise at fastest pace for 3 months

Pounds:

The big news of the day yesterday was the BoE 3-month, £10bn auction. The bank were offering loans at a penalty rate of 6.75%, well above the LIBOR fix of 6.31625%. Unsurprisingly many were reluctant to take this ‘deal’ suggesting that banks were not struggling to secure credit.

The head of the CBI (who is a former member of the MPC) described the UK banking system as akin to a banana republic in response to the BoE’s handling of the Northern Rock situation.

This morning Nationwide house prices showed the highest month on month growth for 3 months however the annual growth is the lowest since early 2006.

CBI Distributive trades is the only figure worth watching today.

Euro:

Again not much from the euro market yesterday apart form stronger than expected CPI figures from German states. We have more of these throughout the course of the day so that should make interesting viewing.

The French finance minister has warned of a possibility of the introduction of an eco-tax on all fuel which should keep pressure on inflation to the upside.

Two ECB speakers are set to speak today.

General News:

• Overnight BoJ member Suda underlined the need for higher rates to stem the overheating of the Japanese economy caused by low rates.
• In China Shenhua Energy has raised a record $8.9bn through a listing on the Shanhai stock exchange.
• Iron ore exporters are predicting a 30% rise in prices next year on the back of Chinese demand.
• Oil rallied yesterday on the back of a brewing storm could impact production on the Gulf of Mexico despite rising inventories in US stockpiles. Oil this morning is $81.06.

Wednesday 26/09/2007 Interbank
GB POUNDS / EURO 1.4278

Northern Rock receives takeover approaches.

Pounds:
Sterling managed a small rally yesterday after a disastrous start to the day on the back of MPC comments. An article in the Yorkshire Evening Post (seemingly an MPC favourite) quoted the MPC’s Sentance as saying the BoE will need time to ‘assess the impact on the real economy’ of the recent financial turmoil. This is a clear sign that the MPC won’t be moving rates anytime soon however the market still looks to be pricing in the chances of a November cut. If there is a cut it is more likely to coincide with the February Inflation Report.

Northern Rock have reportedly received takeover approaches which should see a very lively performance on the stock market for the beleaguered bank.

UK GDP figures are set to come in unchanged when released today at 0930BST.

Euro:

The euro retained it’s strength yesterday posting new highs against the dollar throughout the day and overnight.
The euro seems to have found strong support at the 0.7000 level against the pound so unless we see some strong UK data we may stay around these levels.

Soft German data failed to stifle the ECB’s hawkish noises as the bank continued to speak of robust growth.

Italian data is the main European data release of the day.

General News:

• Today the Swiss see the economic indicator for September. The KOF figure is the biggest in the Swiss market and it is set to fall. The SNB are very wary of the position of the CHF in FX markets and are keen not to let it strengthen too much.
• The Bank of Canada are also concerned about the level of the Canadian dollar given that is still trading near parity.
• Oil drifted away as technical levels were taken out. Inventories today should see some volatility this afternoon. Oil is currently at $79.77.

Tuesday 25/09/2007 Interbank
GB POUNDS / EURO 1.4288

Sterling hit on dovish comments from MPC

UK’s deposit protection scheme only holds £4.4million

Pounds:

Sterling starts the day under pressure following two fairly bearish pieces of news in the UK. Late on after the UK close last night MPC hawk Andrew Sentence released what could be considered dovish comments. These comments, mainly based around the turmoil in financial markets have led to speculation that the MPC may be heading towards a rate cut in the near term. The press are certainly carrying these stories today. 

In addition the Independent writes that the UK’s deposit protection scheme carries a total of £4.4m. This scheme guarantees 100% of all deposits up to £2k and 90% of the next £35k and Chancellor Darling has plans to guarantee up to £100k. The numbers simply don’t add up given that Northern Rock alone held deposits of £22bn. The costs of this deposit scheme will come back in the form of low rates for savers and higher borrowing costs.

Euro:

The euro may have topped out a little following it’s strong rally last week. Given the Fed’s policy easing and the BOE possibly moving lower this year, the ECB will find it hard to justify a rise in rates which will further strengthen the euro and undoubtedly impact exports. The ECB already have one eye on the strength of the euro.

German IFO due out today along with regional CPI data from German states.

General News:

• The BoJ minutes showed that members thought rates should go up once markets have calmed down and the board becomes confidence about economic stability.
• The Reserve bank of Australia overnight said that the August rate hike has not as yet impacted on economic sentiment.
• Oil again pared gains from last week as more and more traders decided to take some profits from the rally. A mild storm in the US Gulf left production undamaged which also helped to keep a lid on any gains. Oil is now $80.41.

Monday 24/09/2007 Interbank
GB POUNDS / EURO 1.4368

Sterling rises in early trade.

Pound:

Sterling looks strong this morning despite some fairly bearish press for the UK over the weekend. Most of the articles published over the weekend were about the housing/property market and impending fall in prices.

The Sunday Times went with the favourite story of plans for new offices in the City may be shelved after the recent squeeze i.e. cranes over London, wait for the property crash story. The Observer also ran a story commenting that Buy to Let landlords may be forced to sell with rising lending costs and falling prices.

There is speculation of a further rate cut in the UK coinciding with the inflation report in November or February however a rate cut in November seems unlikely.
Public sector borrowing due today other than that a quiet day in store.

Euro:

Yet more hawkish sentiment from the ECB over the weekend this time Bini-Smaghi on the wires with Trichet backing him up commenting that the ECB will intervene when necessary. They do seem to showing some concern over the level of the euro against the dollar and the possible implications it may have on exports.

This morning the euro-dollar is again trading on all-time highs however there is very little on the data front today.

General News:

• The South African Rand continues to firm up on the back of rising commodity prices and the fact that gold is trading up at a 28-year high.
• The Aussie dollar continues to look strong with growth looking good and the banking sector looking very stable despite the rocky trading conditions in August.
• Oil traded down from highs despite some production outages with very little reason for oil to head higher. Plenty of smaller reasons for oil to remain volatile however we should consolidate near the $80 level. Oil is now $81.21.

Friday 21/09/2007 Interbank
GB POUNDS / EURO 1.4246

Pounds:

The pound gathered a modicum of support yesterday as retail sales came in well above expectations for the month of August. The figure may be slightly misleading given the weather in August last year in comparison with this year.
MPC Governor King has come under huge pressure from the press following the Treasury Select Committee’s rather weak questioning yesterday in relation to the current credit squeeze. King failed to convince the market that the u-turn in the addition of 3-month liquidity was beneficial and that the Northern Rock situation came about through ‘legislation’. King’s contract comes up for renewal in November and the City is calling for a governor with a ‘bit more market savvy’. No figures today.

Euro:

One-way traffic for the euro at the moment it seems. Euro-dollar has this morning traded through 1.41 making new all time highs, meanwhile against sterling we are now down towards 1.42.
The rise in the euro could have a knock-on effect to the European economy with the strong currency possibly having an impact on exports.
French President Sarkozy is still calling on the ECB to cut rates.

General News:

• The US dollar traded at and below parity yesterday following the fall in the US dollar and rising commodity prices.
• France’s outspoken President is now calling for tougher sanctions against Iran as the US refuses permission for Iran’s president to visit the site of 9/11.
• Oil is trading near all time highs with the flight to safety into the commodity market. This along with the closure of some production platforms due to a tropical depression has forced Texas gold up to the all-time high, this morning trading $81.56.

Thursday 20/09/2007 Interbank
GB POUNDS / EURO 1.4294

Pounds:

Another very shabby day for the pound yesterday with more dovish news from the MPC. Minutes from the September meeting showed all 9 members voted to keep rates on hold at 5.75% given the turmoil in the credit markets in August. In addition the BoE seemed to undergo and about-turn by pumping £10bn into the money markets in an effort to stem rising borrowing costs. Today King and his MPC buddies face a grilling from the treasury Select Committee over the handling of the credit squeeze. Had the BoE adopted this policy a few weeks ago the whole Northern Rock situation could have been avoided. Today could be tough for the MPC Governor. Treasury speeches kick off around 0945BST.
UK Retail Sales is set to dip when figures are released at 0930BST.

Euro:

The euro continued to keep a firm bid with falling bond prices and rising yields. In addition to bond yields ECB member Liebscher continued the hawkish stance this time commenting that he saw upside inflation risks and that the underlying base scenario of rate hikes remains.
Today ECB President Trichet and Axel Weber are set to speak today at some point in addition to supply numbers from France and Spain.

General News:

• The New Zealand current account deficit widened, data showed overnight however not as much as predicted pushing the NZD higher on the FX markets.
• Canadian inflation softened yesterday which pushed the USD-CAD cross away from parity however GBPCAD is trading back towards 2.00.
• Oil printed record highs yesterday on a combination of supply fears on increased worries of hurricanerelated disruptions in the Gulf of Mexico and large drawdowns on US inventories. This morning oils is trading at $80.66.

Wednesday 19/09/2007 Interbank
GB POUNDS / EURO 1.4418

Pounds:

After a rocky start yesterday the pound managed to compose itself and rally despite a drop off in inflation. UK investors were buoyed by comments from Chancellor Darling that the government would do whatever was necessary to stabilise markets. Northern Rock and Alliance and Leicester both recovered some of the losses on the back of the news yesterday and helped lift the UK stock market.
CPI yesterday came in at 1.8%, 0.2% under the BoE target which will give the MPC more room to cut rates if it needs to in response to the current credit drought.
Today the BoE September MPC minutes are published at 0930BST and a 9-0 vote is expected from the decision to keep rates on hold in September.

Euro:

The euro traded to a record high over the dollar last night and is trading within 10 ticks of the high this morning.
After the Fed decision euro-dollar spiked straight through 1.39 hitting a high of 1.3989 on the back of dollar weakness and gathering euro momentum.
German investor confidence has fallen to a 9-month low but this is more than likely down to the stock market jitters in August.

General News:

• The Bank of Japan last night kept rates on hold at 0.5% with an 8-1 vote. One member of the committee keeps voting for a hike but rates don’t seem to be going anywhere quickly.
• Canadian inflation data is due today and this may take the USD-CAD cross to parity if the figure comes in out of line.
• Gold hit highs on the back of the fed decision.
• Oil crept above $80 on the back of renewed confidence following the fed rate hike. This rise will have a knock-on effect at the pumps which US consumers really don’t like. Oil is now $80.84.

Tuesday 18/09/2007 Interbank
GB POUNDS / EURO 1.4378

US Fed expected to cut rates by 0.25% today
• UK inflation set to stay under BoE target
• BoE to guarantee Northern Rock deposits in case of insolvency
• Euro remains firm against the pound
• Australia hints at further rate hikes
• Oil prices remain high ahead of Fed rate cut and supply concerns

US Dollar:

All eyes today are firmly on the Fed rate decision due at 1915BST this evening. The Fed are fully expected to cut by at least 0.25% and there is an outside chance of a 0.5% cut. Bearing in mind inflation is still a worry for Fed members a half percent cut at this stage seems very unlikely. Also on the table will be the discount rate which the Fed cut in response to the sharp stock market slump in August. Most observers think that another cut in discount rates will encourage banks to borrow from that window as opposed to the interbank market which is not what the Fed would want.
Yesterday cable again dipped and is now under 2.00 as UK fears continue to spread to the FX market. The cross hit a low of 1.9877 overnight.
Aside from the Fed today we have US PPI and Capital Flows.

Pound:

Another poor day for GBP yesterday with continuing fears of a downturn in the banking sector. Again Northern Rock was the primary driver with more and more money being withdrawn over fears of insolvency. On the back of this panic spread to other stocks mainly Alliance & Leicester as shares were hit. This prompted the BoE to guarantee all NR deposits. This seems to be setting a dangerous precedent effectively forcing the BoE to underwrite the entire banking system.

This morning cable is again well under 2.00 and against the euro we were trading down towards 1.43 overnight.
After the BoE assurances the pound is slightly stronger on the UK open. Today we have CPI and RPI. Inflation is set to remain under the 2.0% target at 1.9%.

Euro:

The euro continues to gather support from investors cashing up from the UK markets. Euro-dollar has been trading on a gradual downslope but nothing to write home about. The real movement has come against the pound with the cross trading down from 1.48 in the last two weeks.
Today we have the volatile ZEW from the Eurozone and Germany at 1000BST. The economic sentiment in both Germany and Europe is expected to drop for August.

General News:

• The Reserve Bank of Australia overnight commented that the Australian economy is showing no signs of slowing and that no Aussie bank had asked for a bailout in the current credit shortage. Most have taken this as a hawkish statement and are now expecting further rate rises in Oz.
• Former Fed Chairman Greenspan has been on the wires a lot recently but the cynical amongst us might see that as coincidental as he has his memoirs published this week.
• Oil ticked back up in anticipation of a Fed rate hike and concerns over weather related supply outages given it is still hurricane season. Oil is now $79.84.

Monday 17/09/2007 Interbank
GB POUNDS / EURO 1.4415

Pounds:

The pound remained firmly on the back foot on Friday and looks to be again this morning on the back of the
ongoing Northern Rock debacle. The incident itself is not the sole reason for the falling pound however it is
highlighting there may be more problems in the system than anticipated. All of the weekend press has been
negative with worries about the credit squeeze, falling house prices and calls for rate cuts.
It is worth noting that Credit Suisse have changed their UK forecast to a cut before the end of 2007.
This morning cable is heading towards 2.00 meanwhile against the euro we look to be trading towards a 1.43
handle. No data of note due from the UK today.
Northern Rock have agreed to 2 hours extra opening today.

Euro:

Again the euro remains strong in the current climate with ECB members reiterating the inflation risks to the
economy. Trichet says recent market action is simply a re-pricing of risk meanwhile 6 other members commenting
that inflation risks remain non upside and that rates are still accommodative.
A recent survey from the International Money Market showed that speculative traders had increased their net
long euro positions which should keep the currency well supported.

General News:

• The Swiss National Bank (SNB) kept it’s rate target at 2.75% following the hike last week.
• France’s Foreign minister yesterday said that the world should prepare for war over Iran’s nuclear programme.
• An IMM report showed that yen positions had flipped from net short to now net long.
• Oil is drifting slightly as the risk of hurricane-related disruptions ease however tropical storms are continuing
to form in the Atlantic. Oil is trading $78.69.

Friday 14/09/2007 Interbank
GB POUNDS / EURO 1.4564

Pounds:

The pound was smacked near the close last night as it emerged that Northern Rock has applied to the Bank of England for emergency funding to meet financing obligations. The bank will now provide a credit line to NR in order for the lender to refinance it’s maturing obligations. The BOE also commented that it would be prepared to help other struggling institutions. This was a major knock for the pound as it transpires that the economy may not be as healthy as once thought.
As the news emerged sterling was whacked with cable losing over a cent. Against the euro the pound traded down 50 pips. This morning cable has tentatively crept back above 2.02 but does not look well supported. No data is due from the UK and no MPC speakers are scheduled.

Euro:

Another solid day for the euro yesterday with expectations of a rate hike in the coming months. It is worth noting that one of the more hawkish European banks, UBS, has revised it’s forecasts and now believes the ECB won’t raise rates in 2007 or 2008.
This morning the Euro zone CPI is released at 1000BST which should provide some interesting reading. The analysts are looking for an unchanged figure.

General News:

• As expected the Swiss National Bank raised interest rates by 0.25% and left the door open for more hikes. A comment released with the move said ‘the SNB is aiming to calm the Swiss franc money market’ after the carry trade frenzy of the first half of 2007.
• China looks set to keep rates on hold until after the Communist Party Congress as China looks to stay away from influencing asset prices.
• Oil is still trading up near $80 however prices slid as hurricane Humberto continued to subside yesterday.
A firm bid was kept by reports of tropical storm Ingrid forming in the Atlantic. Oil is now trading at $79.64. 

Thursday 13/09/2007 Interbank
GB POUNDS / EURO 1.4589

Pound:

A poor day for the pound yesterday despite assurances from BOE Governor Mervyn King that the MPC will not be taking drastic measures in response to the continuing credit squeeze. The reality is that a bank rate cut will not reduce the LIBOR rate which is still near it’s peak. King basically said that he won’t be reducing rates to help out the City. The Guardian carries a very good story on the situation this morning.
Overnight RICS house price data showed a fall in prices for the first time since 2005 as the interest rates begin to take hold. Prices in London grew at the slowest pace in over 2 years.
Nothing is expected from the UK today after the RICS release overnight. Again all eyes will be on the wires for MPC comments.

Euro:

The euro again looks strong trading up to all-time highs against the dollar and pushing below 1.46 on the pound. The support is still coming from expectations of further rate hikes in the Eurozone despite forecasts that 2007 growth will not meet initial expectations. As usual ECB bankers continue to bang the same old inflation drum.
Eurozone member state CPI’s are due out this morning.

General News:

• The BOJ have now effectively ruled out interest rate hikes in the near-term blaming the increasing liquidity squeeze and the danger of deflation in Japan.
• The RBNZ last night opted to hold rates at 8.25% • Goldman’s Global Alpha fund reportedly lost 22% in August.
• Oil hit new highs of over $80 per barrel on a combination of supply worries, massive drawdowns on US inventories and the upgrade of tropical storm Humberto to hurricane strength. This morning oil is trading at $79.72.

Wednesday 12/09/2007 Interbank
GB POUNDS / EURO 1.4675

UK retailers forecasting a ‘bloodbath’

Pounds:

Not great news for the UK economy yesterday as two of the larger high street retailers, Next and JJB Sports warned that higher interest rates are yet to hit the consumer and that JJB may miss profit targets by up to 25%. Chief Exec of Next warned that the interest rate squeeze may hit it’s peak around Christmas time.
Elsewhere the UK trade deficit widened with non-EU trading hitting an all time record mainly on imports from the far East, particularly China.
The press is full of doom and gloom this morning with further speculation of a rise in bankruptcies of leveraged companies with the lack of cash in the system.
Employment data is focus of the morning at 0930BST.

Euros :

The euro remains supported by talk of rising interest rates. This time it is Liebscher commenting that European growth remains strong and that inflation risks lie to the upside. Amid moderating interest rates around the world these comments should keep a firm support in for the euro.
Eurozone Industrial Production is the main data release of the day with a moderate increase expected. With euro-dollar sitting near all-time highs a breakout could be on the cards.

General News:

• The resignation of Japanese Prime minister Abe has caused some uncertainty in the Asian markets.
• Russia announced that it has successfully tested the most powerful air delivered vacuum bomb.
• Barclays has injected $1.5bn into another of it’s ailing funds, Golden Key.
• Oil continued to trade higher as traders remained unconvinced of OPEC’s ability to keep supply near demand despite yesterday’s announcement of an increase in production. This morning oil is near record highs trading $78.27.

Monday 10/09/2007 Interbank
GB POUNDS / EURO 1.4718


Pounds:
Sterling rose on the back of a basket of currencies after the volatility of Friday. One of the main reasons seemed to be the Feds cutting of their discount rate by half a basis point which was done top try to provide the market with some stability.
In the Sunday Times, leading bankers are warning of the worst crises in the money markets in 20 years, which will come to a head this week when $113 billion (GBP57 billion) of commercial paper market IOU’s comes up for refinancing. This huge refinancing, mainly through London, exceeds the $100 billion that became due in August, and which sparked the most serious phase in the money market crises, which has sent
banks scrambling for funds and market interest rates rising sharply.
Date today GBP 9.30am

Euro:
The euro gained against the USD following poor US data which pushed the greenback lower across the board.
Overall the EUR-USD traded with a low 1.3663 and a high of 1.3799 before ending back at 1.3789 in New York session.
Data released already was Italian GDP which came out much as expected.

General News:
• Japanese GDP came in much weaker than expected though it did little to move the market., although the lower yielding currency was the biggest beneficiary as investors fled risky trades funded by borrowing the Japanese currency at low interest rates.
• Gold rocketed to a 4.5 month high following poor payrolls numbers in US The low was 692.55 and the high of 706.73
• The Aussie remained steady despite its role as a high yielding currency.

Monday 03/09/2007 Interbank
GB POUNDS / EURO 1.4796

Pound:

Continuing strength for the pound as lending rates between the banks remains high due to the continuing credit squeeze in the markets. This week the MPC sit down to decide on whether to raise, cut or do nothing to the interest rates in September. Futures markets look to have a hike priced in however these have been distorted by rising LIBOR rates. Most analysts are looking for a no move this month with possible hikes further down the line. Given that last time out one member voted to cut rates this week could be very choppy.
Barclays President Bob Diamond urged the BOE to introduce liquidity into markets to boost confidence in an interview with the Sunday Times.
UK PMI and HBOS house prices due out today.

Euro:

The ECB look set to leave rates unchanged for September despite traders being virtually unanimous last month that rates would be going up. The good, old unnamed ECB ‘source’ hit the wires on Friday commenting that the ECB will revert to their tightening bias after September.
Quite a few pieces of data due today with member nation PMI’s, Italian budget data and topping the listings is ECB President Trichet who is scheduled to hit the wires at 1300BST.

General News:

• A senior Chinese official said overnight that China’s massive USD (1.33trillion) fx reserves were not held in subprime backed securities.
• Mixed news from the two nuclear watch countries over the weekend: North Korea agreed to dismantle its nuclear plants , meanwhile the Iranians claim to have over 3000 centrifuges running heightening fears that they may be nearing an atomic weapon.
• Oil is trading up again as the stock market rallies and traders turn towards storm watching as a cat 4 hurricane heads towards the Caribbean. Oil is $74.27.