Forex Futures Forum Archive for 07/1/2005

Mtl JP 18:10 GMT July 1, 2005 Reply   
Donaldson gone: good riddance

SanFrancisco analyst 16:24 GMT July 1, 2005 Reply   
Todays US economic data was again strong, with consumer confidence and manufacturing showing no signs of "froth."

The one trouble spot, however, is the is the demand for US exports which is very weak. Condition is likely part global slowdown, part pricing imbalance compared to some regions, part high oil pricing, part relative currency valuation especially with relation to under-cut Chinese pricing. All of these drags can be fixed but there has to be the desire.

Syd 07:21 GMT July 1, 2005 Reply   
Interest rate support for the pound is likely to be swept away in months to come, opening up considerably more downside room for the U.K. currency.

How far it falls will depend as much on the performance of the euro and the dollar as anything else.

But with economic data released Thursday helping to confirm the worst fears about the U.K. economy, considerable losses could well be under way.

"The pound's outlook appears gloomy," said Neil Mellor, a currency strategist with Bank of New York in London, as he pointed to the pound's already steep slide that has taken it back down under $1.8000 for the first time since Oct. 19 last year.

"Sterling is likely to be vulnerable to a further depreciation in trade-weighted terms as the economy deteriorates," said economists at Investica, an independent investment advisor in the U.K.

There is little new about worrying that the pound is overvalued.

For months, as house prices slowed and consumer activity fueled by the housing bubble declined, analysts have become concerned that a more major correction in the economy and the currency could be on its way. After rising to nearly $2.00 late last year, sterling has gently declined for most of 2005.

By last week, concern that interest rates might be too high was reflected in the latest Bank of England monetary policy minutes with two out of the nine board members voting for a rate cut.

That number is likely to multiply rapidly after Thursday's avalanche of negative data.

This started with a report from mortgage lender Nationwide showing that house prices were down another 0.2% in June. This helped to counter other recent figures showing that mortgage approvals posted their largest rise in 10 months and suggested that there is little evidence that prices are about to rebound.

Concern that the consumer boom is coming to an end even sooner than expected also rose as retail sales data showed a sharp fall earlier in the week and the country's first-quarter GDP was revised down sharply to 2.1% from 2.7%. On top of that, the latest consumer survey by Gfk showed that confidence continues to slide.

To make matters worse, the U.K.'s external balances were also deteriorating, with the current account deficit widening to GBP5.8 billion in the second quarter from GBP5.0 billion in the first quarter.

All this is hardly good news for the government, which is already facing an expanding budget deficit with the estimated costs of introducing identity cards to the whole population rising much more than originally anticipated.

"These data suggest that the economy has lost more momentum than previously thought in the past year but that the relationship between house prices and consumer spending has been stronger than previously thought during both the upturn and the downturn in the property market," said Michael Dicks, senior U.K. economist at Lehman Brothers in London.

Like others, he argues that all this data "seals the case for an early rate cut from the MPC."

Lehman itself is bringing forward its forecast for a cut to August from November. But others suggest a cut should come even sooner.

"The debate should be shifting to the possibility of a July rate cut," said Daragh Maher, senior foreign-exchange strategist with Calyon Corporate and Investment Bank in London. "With only 3 basis points of easing priced in for that meeting, the risk-reward of an immediate cut looks attractive."

Given the market's current focus on yields, this is hardly good news for the pound.

"The pound is likely to remain on the backfoot against the euro and the dollar," Maher said.

And it isn't only lower U.K. rates that will hurt the pound. Looking at the current trend for rising risk aversion, Steve Saywell, currency strategist with Citigroup in London, suggests this could be another excuse for investors to steer clear of sterling.

"In an environment of increasing risk aversion, high-yielding currencies, such as the pound, may suffer as investors seek safer alternatives," he said.

As European trading gets underway Friday there is little sign of any support appearing for the pound, especially as the U.S. Federal Reserve's decision to raise interest rates another 25 basis points late Thursday helped focus markets even more intensely on interest rate differentials.

Just before 0700 GMT, the pound is down at $1.7824 from $1.7906 late Thursday in New York. It had already lost two cents after starting trading Thursday up just over $1.8100.

Against the euro, losses were more contained. After rising over half a penny Thursday, the single currency is trading slightly lower at GBP0.6751, compared with GBP0.6858 late Thursday in New York.

Ltn th 05:40 GMT July 1, 2005 Reply   
G-8. I think I have used decimal ascii encoding to get around censor in past.