Showing posts with label Sterling. Show all posts
Showing posts with label Sterling. Show all posts

Sunday 14 March 2010

Sterling's recent storm risks intensifying

Sterling's recent storm risks intensifying

After rallying to $1.70 in recent weeks, sterling faces new and potentially severe headwinds, writes Ian Campbell.

 
The UK's sanguine summer has suddenly turned unsettled. Not for the first time it was the Bank of England that changed the weather. Its decision last Thursday to print another £50bn has clobbered the previously resurgent pound, which fell by 3pc against the dollar in just two trading sessions. The storms could soon get worse.

The central bank's response to the pound's immediate fall is likely to be: "Oh dear, what a pity, never mind". Spencer Dale, the bank's chief economist, described the exchange rate in June as a "key channel through which the monetary easing may be transmitted". The weaker pound favours exports, tourism – and inflation. The UK's 1.8pc inflation rate is far away from the deflation in the US, the eurozone, Japan and even fast-growing China. Rising prices keep real interest rates low, even negative. That's impossible if deflation gets a grip.

The bank's now £175bn quantitative easing (QE) scheme is intended to be mildly inflationary, as that stimulates GDP growth. But if growth doesn't revive, QE, in the context of the huge fiscal deficit, could prove counterproductive. The government's financing projections call for borrowing of £348bn this fiscal year and next. The danger is that this is beyond what the market will tolerate.

The dollar was undermined earlier this year when the US Federal Reserve committed itself to buying $300bn of government debt. That was just 2pc of US GDP, far less than the BoE's purchases, mainly of government bonds, worth 13pc of GDP.

It would be surprising if the pound did not fall further. Sterling could easily return to its $1.40 lows of earlier this year. That would help the UK economy to revive. But if anxiety about the UK's finances were to turn to panic, the drop could become dangerously steep.

If emergency fiscal measures are required, the central bank could also be forced into an embarrassing change of course.

http://www.telegraph.co.uk/finance/currency/6011675/Sterlings-recent-storm-risks-intensifying.html

How to profit from the plunging pound

How to profit from the plunging pound

Our currency is being hammered, but for those planning to exchange sterling into euros or dollars there are ways to avoid the pain – or even make money.

 
Cartoon of tourists in Paris with various banknotes - How to 
profit from the plunging pound
Photo: HOWARD McWILLIAM
 
Fears about Britain's public finances mean the pound has lost about a third of its value against the euro and a fifth against the US dollar during the past three years, creating misery for holidaymakers, retired expats and those with property abroad.

But last week the pace of this decline accelerated, prompting fears of a sterling crisis. By midweek the pound was worth just $1.50, its lowest level for 10 months. It also lost value against the euro – which has been struggling itself in recent months. This volatility has resulted in the the pound dropping to €1.11 in a matter of weeks.
These falls have been partly caused by speculation that there will be a hung Parliament, delaying Britain's economic recovery. And while uncertainty remains, there is the chance that the pound could fall further.
Mark Bodega, marketing director at HiFX, the currency broker, said: "While no one can predict where the markets will end up, one thing we can be sure of in the coming months is no let up on volatility."

But whether you are looking to invest overseas, transfer money abroad, or go on holiday later this year, there are steps you can take now to minimise the risks that the currency markets may move against you. Bolder investors may even want to follow in the footsteps of George Soros – who bet against the pound in 1992 – and try to make money from our weaker currency.

BOOST SPENDING MONEY

The recent dive in the value of the pound will affect those due to travel abroad soon. According to Travelex, those heading to Europe will now get €22.17 less when exchanging £500, compared with the same time last month, the equivalent of a guided bus tour of Paris. Those travelling to the US will be $53.32 short when exchanging £500 compared with early February, the price of two main meals at LA's Chateau Marmont.
But David Swann, a currency strategist at Travelex, says: "Compared to a year ago, British travellers aren't faring too badly. Those travelling to the States are actually getting a slightly better exchange rate, while holidaymakers buying euros get just €13.74 less [again on £500]."

But travellers got a lot more bang for their bucks in 2007, before the credit crunch hit. Those switching £500 into euros got an additional €185.94 compared with today, while those changing money into dollars pocketed an extra $230.89.

Bob Atkinson, a travel expert with Moneysupermarket.com, said: "Even if you think the pound will weaken further, keep an eye on short-term movements; if there is a slight rally then you may want to use the opportunity to buy euros for the summer." But he also urges holidaymakers to ensure they don't pay over the odds on commission or charges: "Those who search out the best deal will get almost 10pc more spending money than those who simply leave it to the last minute and change their money at the airport." 

The cheapest deals are invariably the prepaid cards offered by the companies such as FairFX and Caxton FX, according to Mr Atkinson. He said: "Check whether there is any fee to take out a card and what fees, if any, are levied each time you reload the card."

Buy currency online, he advised, from either Travelex or Thomas Cook. "Online exchange rates are usually far more competitive than those offered at a bank or bureau de change." Even if you have left it to the last minute, it is possible to order online, and pick up the money at the airport, usually for no extra charge. 

Check what charges are levied on debit and credit cards. If you are not travelling abroad until summer, apply now for one of the cheaper debit or credit cards available. Santander's Zero card and Nationwide's debit card remain two of the better options.

DON'T SAVE IN STERLING

Savers can open a euro or dollar-denominated account instead and will benefit if the pound weakens further against these currencies. (Although they lose out if it strengthens.)

These accounts are particularly useful for those who travel frequently or receive or make regular payments in another currency. Holding money in euros (or dollars) means customers don't have to pay frequent foreign exchange fees each time they travel, and it also helps protect them from currency fluctuations. For example, if you receive monthly rental payments in euros from a property, banking this in a euro account leaves you free to convert it back into sterling when exchange rates are more favourable. 

Cater Allen offers one account that allows customers to switch money between dollar, euro and sterling sub-accounts, at no cost. Most require a minimum deposit of at least £5,000. Historically, the interest rates paid on such accounts has been low, but given the rock-bottom rates paid on most British savings account today, this is less of a cost today.

According to Moneyfacts.co.uk, the top-paying euro accounts include Anglo Irish Bank (paying 2.25pc on £10,000) and Halifax International (paying 1.35pc, again on £10,000). Most dollar-based accounts pay less than 1pc – the only exceptions being Anglo Irish Bank (1.5pc) and Irish Permanent (1.5pc on a 30-day notice account).

REALISE OVERSEAS GAINS

The weak pound has increased the costs of maintaining a property abroad, but it does help those selling. Mr Bodega said HiFX has seen a significant increase in people selling overseas assets, repatriating to Britain and converting gains back into sterling.

In total, HiFX says it has seen a 180pc increase in the number of euro-to-sterling transactions in the past six months, and an 111pc increase in the number of dollar-to-sterling transactions.

TAKE A BET ON CURRENCY MARKETS

Opening a euro or dollar account leaves you exposed to movements in the currency markets, which can work for or against you. But losses and gains are limited: provided your bank remains solvent, the money deposited is safe, although its value may fluctuate.

Those who want to take a more aggressive position on currency markets can do so via spread betting or "contracts for difference". For currency trades, most private investors use spread betting, as there is no capital gains tax to pay on profits.

Spread betting allows you to take a stake on future price movements, be it in currencies, stock markets, bond prices or even sports results.

A firm such as City Index will give a spread bet price on a currency market, such as the sterling/dollar pair of $1.5040-$1.5043. If you thought that the sterling/dollar rate would increase, you would buy the spread price, or if you believed that the sterling would weaken, you could place a sell bet. These are "pound per point" bets, so if you place a buy bet with a stake of £2, you will make £2 for every point the pound rises above your entry level.

If the market moves against you, you will pay £2 for every point it moves in the wrong direction. The spread price will track the underlying exchange price of the sterling/dollar currency pair. Given the volatility of currency markets, it is not hard to see how people can ether make money quickly or owe significant sums.
These are also leveraged bets, as investors only put down a "margin trade", which may be just 1pc of their exposed position. This can mean bigger gains, but also magnified losses. 

But spread betting isn't just used to speculate. It can also be used as a hedging tool to protect investors against currency markets moving against them. Joshua Raymond of City Index says: "If you were looking to buy a house in Spain for €300,000 and money was due to transfer on April 1, this would cost you about £271,500 at today's exchange rate.

But if the pound weakens over the next month – say it goes back to be worth just €1.0250 again – this investor will have to find an extra £21,189 to complete the deal.

"To combat this, you can make an FX spread bet to cover this difference," Mr Raymond said.
If you take a short position on the pound, any profits made should cover the extra payments due on the mortgage deal. If the market moves against you and the pound rises, you have lost money on the spread bet, but will need less money to complete the housing transaction.



http://www.telegraph.co.uk/finance/personalfinance/investing/7375451/Sterling-how-to-profit-from-the-plunging-pound.html

No turning back: Sterling is going to fall further over coming months, warns Unicredit


Europe's banks brace for UK debt crisis

UniCredit has alerted investors in a client note that Britain is at serious risk of a bond market and sterling debacle and faces even more intractable budget woes than Greece.

Big Ben - Europe's banks brace for UK debt crisis
No turning back: Sterling is going to fall further over coming months, warns Unicredit
The Italian-German group, Europe's second largest bank, said Britain's tax structure will make it hard to raise fresh revenue quickly enough to restore confidence in UK public finances.
"I am becoming convinced that Great Britain is the next country that is going to be pummelled by investors," said Kornelius Purps, Unicredit 's fixed income director and a leading analyst in Germany.
Mr Purps said the UK had been cushioned at first by low debt levels but the pace of deterioration has been so extreme that the country can no longer count on market tolerance.
"Britain's AAA-rating is highly at risk. The budget deficit is huge at 13pc of GDP and investors are not happy. The outgoing government is inactive due to the election. There will have to be absolute cuts in public salaries or pay, but nobody is talking about that," he told The Daily Telegraph.
"Sterling is going to fall further over coming months. I am not expecting a crash of the gilts market but we may see a further rise in spreads of 30 to 50 basis points."
Yields on 10-year gilts have already crept up to 4.14pc, compared to 3.94pc for Italian bonds, 3.48pc for French bonds, and 3.19pc for German Bunds, though part of this reflects worries about higher inflation in Britain.
Ian Stannard, currency strategist at BNP Paribas, said markets are fretting over how the UK will cover its deficit following the pause in quantitative easing by the Bank of England. The Bank has absorbed £200bn of debt, more than total Treasury issuance over the last year.
"The UK may have difficulty in attracting extra investors to fill the gap. We think they will have to do more QE as recovery falters," he said.
BNP Paribas expects sterling to drop to $1.31 against the dollar this year and reach parity against the euro despite troubles in Club Med. "We're very bearish on the UK," he said.
Big global banks are divided over Britain's economic prospects . Goldman Sachs is betting on a turbo-charged recovery as the delayed effects of sterling devaluation kick in. Britain's trump card is an average debt maturity of 14.1 years, nearly three times US maturities and double those of France. This greatly reduces the risk of a "roll-over" crisis.
UniCredit said Greece is better placed than the UK in coming months even if deficits look comparable. "The polls point to a minority government in the UK, while Greece's government can count on a majority to push austerity measures through parliament. Secondly, the British tax system offers less leverage for a rise in revenue," he said.
Paradoxically, Greek tax evasion creates scope for a surge in revenues from tougher enforcement. "It is not out of the question that we will see a positive surprise in Greece: is there any such hope for Britain?" said Mr Purps.
Still, while it is arguable whether a hung Parliament in Britain will lead to policy drift, analysts said Greece was in trouble already. The country was brought to a standstill on Thursday by the second general strike in weeks. Police clashed with rioters , again reducing Athens to a fog of tear gas. Observers said that did not augur well for a nation that has hardly begun its three-year ordeal of draconian cuts.

Saturday 13 March 2010

Pound up as UK inflation expectations rise


Pound up as UK inflation expectations rise

Sterling rose on Thursday after a slight uptick in inflation expectations, though analysts still expected economic and political concerns to keep the pound under pressure ahead of an upcoming general election.

 
Pound up as UK inflation expectations rise
Pound up as UK inflation expectations rise Photo: PA
The pound skidded to one-week lows against the dollar and euro on Wednesday after below-forecast manufacturing output figures added to a string of disappointing data.
But Britons' expectations for inflation over the next 12 months rose slightly, a survey from the Bank of England showed on Thursday, helping to underpin sterling, albeit temporarily.
"Inflation expectations showed a modest uptick and sterling has moved up on the day, but this is not overly significant. I don't think it will have any impact on Bank of England policy ahead," said Lee Hardman, currency strategist at BTM-UFJ.
Hardman added sterling's bounce was most likely flow-driven, reiterating his bearish stance on the pound going into a UK general election, widely expected in May.
At 1139 GMT, sterling was trading up around 0.4pc versus the dollar at $1.5050, off a one-week low of $1.4873 hit on Wednesday. Euro/sterling was down around 0.4pc at 90.75 pence, retreating from a high of 91.30 hit on Wednesday.
The Bank of England's trade-weighted sterling index edged up to 76.7 after falling to a fresh 11-month low at 76.4 on Wednesday. Sterling has fallen 7pc on a trade-weighted basis from its January highs.
Analysts remained jittery the threat of a hung parliament after the election would stymie efforts to deal with the UK's spiralling budget deficit.
Adding to the negative mix was concern over Britain's sovereign ratings after Fitch Ratings highlighted on Tuesday the UK's deteriorating credit profile.
Prime Minister Gordon Brown said on Wednesday he believed Britain would maintain its coveted top credit rating and announced a pay freeze for top civil servants to help tame a record deficit.
But worries over the public finances prevailed, with the deficit heading for 12pc of GDP this fiscal year.
"Markets are currently not very receptive to an overly casual approach to national finances. As a result the period of weakness in sterling is likely to continue," said Commerzbank analysts in a note.
Data releases in the UK are now sparse ahead of BoE minutes and employment data due next Wednesday.

Thursday 11 March 2010

Stronger ringgit boosts Bursa


Thursday March 11, 2010

Stronger ringgit boosts Bursa

By IZWAN IDRIS and YVONNE TAN


PETALING JAYA: The ringgit is on a roll after Bank Negara raised interest rates last week amid mounting evidence the nation’s economic recovery is gaining traction.
And the currency strength has rubbed off on the share market, propelling the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) to a fresh two-year high of 1,328.22 points at the close yesterday.
“Many thought that Indonesia or South Korea would be the first to hike interest rates but Malaysia was the one which started the ball rolling in the Asian region,” Datuk Lee Kok Kwan, deputy chief executive officer, group treasury and investments at CIMB Group, told StarBiz yesterday.
As a result, “funds are flowing back in,” he said.
The ringgit had risen 1.5% against the US dollar since March 4 to 3.321 yesterday after Bank Negara increased its key overnight policy rate (OPR) from its historic low by 25 basis points to 2.25%.
Year-to-date, the local currency had shot up 3.18% yesterday and was the best performing currency in Asia ahead of the Korean won’s 2.9% gain over the same period.
The local unit’s performance against embattled European currencies was even more impressive, up 10% against the British pound and 8.7% against the euro since the start of the year.
Royal Bank of Scotland Group Plc, in a recent report, advised investors to buy the ringgit against the won and yen on expectations of further interest rate hikes here.
Its strategist Chia Woon Khien told Bloomberg yesterday that Bank Negara “could do a few more” rate hikes. “The question is whether they want to go straight to neutral level or stay a little dovish along the way,” he said.
OSK Investment Bank Bhd director and head of treasury Yeo Chin Tiong expects rates to “gradually” rise as the economy recovers. “Our house target for the ringgit is 3.20 versus the US dollar by year-end,’’ he toldStarBiz yesterday.
Meanwhile, RAM Ratings Services Bhd in its 2010 edition of its CreditPulse report said the ringgit was expected to strengthen to 3.20-3.30 against the greenback by end-2010.
It said there would be a “gradual” currency appreciation boosted by high current account surplus, international reserves and low inflation.
The stronger outlook for the ringgit, fuelled by rising rates and improving economy, has also boosted the appeal of local assets, especially for foreign investors.
At yesterday’s close, the FBM KLCI was up 4.36% since the start of the year. But the stronger ringgit means returns calculated in US dollar terms have shot up to 8.4% over the same period.
This made the local bourse the second best performer in the region behind Indonesia’s Jakarta Composite Index which gained 9%.

Wednesday 3 March 2010

Sterling's slippery slope

Sterling's slippery slope

Telegraph View: the benign devaluation threatens to become a rout

 
The 25 per cent fall in the value of the pound over the past couple of years has amounted to a bigger depreciation than in any single post-war sterling crisis. Most see this as a healthy correction of an over-valued currency, which has given us a more competitive exchange rate just when we needed it.
This benign devaluation now threatens, however, to turn into a rout. For this week's fall in the pound has been prompted not by worries over Britain's prospects, but by doubts about the economic credibility of the Government. The Tories' diminishing poll lead has raised the spectre of a hung parliament, and of chaos and gridlock in government at the worst possible time. The markets have taken fright: as Kenneth Clarke, the shadow business secretary, observed yesterday, it has only been the prospect of a Conservative victory, and the arrival of a government prepared to tackle the fiscal crisis head on, that has held down interest rates and sustained sterling in recent months. The possibility that this may not happen has alarmed foreign investors, for it is uncertainty that spooks the markets.
Given that we have nine weeks before polling day, there is plenty of scope for more damage. The Tories must take some of the blame. The markets have spotted what we have already highlighted: a worrying uncertainty in the Conservative message. But there is a heavier responsibility on the Government. Reports that the Prime Minister is trying to push the Chancellor into a pre-election giveaway are troubling. They reinforce the impression that Labour is not serious about tackling the deficit and that has added to the market jitters. Alistair Darling has an obligation to ignore his next-door neighbour and put country before party, by ensuring a credible deficit reduction plan is at the heart of his Budget.

Friday 27 November 2009

Asian Stocks Fall Amid Dubai Fears

Asian Stocks Fall Amid Dubai Fears

By THE ASSOCIATED PRESS
Published: November 27, 2009
Filed at 7:22 a.m. ET

LONDON (AP) -- European stock markets regained their poise Friday but Asia fell sharply as investors weighed the impact that Dubai's trouble with $60 billion in debt would have on the global financial and economic recovery.

Sentiment among investors has been hit hard by Wednesday's news that Dubai World, a government investment company, has asked creditors if it can postpone its forthcoming payments until May. That stoked fears, mainly in Europe on Thursday, of a potential default and contagion around the global financial system, particularly in emerging markets.

Asian stocks were particularly badly hit as they played catch-up following the big losses in Europe in the previous session. Hong Kong's Hang Seng closed 1,075.91 points, or 4.8 percent, lower at 21,134.50, while South Korea's benchmark plummeted 4.7 percent to 1,524.50.

In Europe, the FTSE 100 index of leading British shares was down 14.18 points, or 0.3 percent, at 5,179.95, while Germany's DAX fell 13.08 points, or 0.2 percent, to 5,601.09. The CAC-40 in France was 15.02 points, or 0.4 percent, lower at 3,664.21. On Thursday, Europe's main indexes slid over 3 percent, with banks, especially those thought to have exposure to Dubai such as Barclays PLC, HSBC PLC and Standard Chartered PLC, particularly badly hit.

All eyes in Europe will be on Wall Street, which was closed Thursday for the Thanksgiving Holiday. Expectations are that it will open down but that the selling won't turn into a rout -- Dow futures were down 236 points, or 2.3 percent, at 10,206 while the broader Standard & Poor's 500 futures slid 31.1 points, or 2.8 percent, at 1,077.80.

''It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested but for the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course,'' said Jane Foley, research director at Forex.com.

Across all markets, there is a growing awareness that investors may use the upcoming year-end to lock-in whatever profits have been made over the last 12 months.

''Market cynics have been looking for a correction in the equity market, which has blazed the trail in the past seven months,'' said David Buik, markets analyst at BGC Partners.

''However they have been unable to find sufficient reasons to nail their flag to the mast, by taking profits, whilst alternative asset classes were unattractive options -- well they certainly found an excuse yesterday with the Dubai debt debacle,'' he added.

Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 84.81 yen.

However, the dollar climbed back off its lows to 86.46 yen amid mounting expectations that the Bank of Japan may intervene in the markets by buying dollars or selling yen after Japan's finance minister Hirohisa Fujii said he was ''extremely nervous'' about the movements in the yen and that the ''market had moved too far in one direction.''

On Thursday, the Swiss National Bank reportedly intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc. That seems to have worked -- for now, at least -- as the dollar has moved back above parity, trading 0.9 percent higher at 1.0118 Swiss francs.

The British pound has also been battered amid fears about the exposure of Britain's banks to the region. The pound was down 0.9 percent at $1.6375.

Another currency losing some of its shine was the euro, which fell 0.8 percent to $1.4906 -- in times of uncertainty the dollar is considered to be more of a safe haven currency. Investors are also concerned about the exposure of European banks to Dubai.

Elsewhere in Asia, Japan's Nikkei 225 stock average fell 301.72 points, or 3.2 percent, to 9,081.52 while Australia's index dropped 2.9 percent. China's main Shanghai stock measure was off 2.4 percent.

Oil, meanwhile, tracked developments in stock markets and benchmark crude for January delivery fell $3.79 to $74.17 a barrel in electronic trading on the New York Mercantile Exchange.

--------

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

http://www.nytimes.com/aponline/2009/11/27/business/AP-World-Markets.html

Saturday 20 December 2008

Sterling: Why it can't stop falling

Sterling: Why it can't stop falling

By Edward Hadas, breakingviews.comLast Updated: 1:43PM GMT 19 Dec 2008
Comments 4 Comment on this article

The pound just won’t stop falling. As of Friday morning, the UK currency was down 5pc against the euro over a week, and 17pc since mid-October. This decline is all too justified.
Foreign exchange traders have short attention spans and a long list of concerns. And right now the pound ticks almost every box to fail a summary health check.
Does the UK need foreign cash? That’s a big tick. The country’s balance of payments deficit is running at 3pc of GDP. Are yields low, making government debt - the holding of choice for foreigners - unattractive? That’s another tick in the box. The already low 2pc policy interest rate is set to head towards zero.
Worries about the overall financial system merit a tick too. UK banks expanded their balance sheets in the boom with an abandon usually seen in developing countries like Argentina and Turkey. The subsequent mess could end in blanket nationalisation, with all the risks of the politicised, inefficient lending decisions that often come with state control.
Now for the double tick. Currency traders don’t like governments that run big deficits, which often end in inflation. The UK government is already planning to borrow an awesome 8pc of GDP - and is likely to borrow much more.
About the only bonus for sterling right now is inflation, which is falling in the UK as it is everywhere. But even that might not last, as the weak pound drives up the price of imports, equivalent to 33pc of GDP.
For more agenda-setting financial insight, visit www.breakingviews.com
After such a rush of sterling selling, a brief rebound is possible. For longer-term optimists on the pound - yes, there are a few still out there - the main hope is that a cheap currency will spur exports. But before the Germans and Chinese can be tempted by cheaper goods from the UK, the country has to produce them. That won’t be easy, no matter how low the pound falls. The UK has moved away from manufacturing more than any other rich country. Now it is too short on intellectual and physical capacity to profit from the price advantage provided by sterling’s fall.
It will take more UK pain before there is much sterling gain.

http://www.telegraph.co.uk/finance/breakingviewscom/3850857/Sterling-Why-it-cant-stop-falling.html