Pound/Euro rates continue to fall

Monday 17th December 2012

Good morning. As always for a Monday, today I'll take a look back at last weeks movements, and what may happen to exchange rates in the run up to Christmas. The Pound/Euro rate fell steadily last week, to it's lowest rate in nearly 7 months.

In this week’s Report: 

• UK’s AAA Credit Rating under threat 


• Pound/Euro rates continue to fall 


• Sterling Dollar remains near 2 month high 


• Round up of the week’s other data that may affect rates  

Sterling vs. Euro; 

Last week we saw sterling euro rates steadily decline on the back of several positive data releases from the Eurozone, coupled with negative data from the UK. In this week’s euro report we’ll look at what those releases mean and how they have affected the single currency and sterling. 

The main driving force behind the movements was due to a newly agreed plan to make the European Central Bank (ECB) the Chief Regulator of European banks. This in turn paves the way for direct recapitalisation of struggling Eurozone banks using funds from the €500 billion European Stability Mechanism (ESM). 

The news that the ECB will regulating struggling European banks coupled with the possibility that the UK could have its credit rating downgraded from its prestigious AAA all helped the single currency gain ground on a now floundering pound , making the 4 and a half year highs of 1.2860 seen only a few months back seem a distant memory. 

Rates are now at their lowest in quite some time, and give or take a point, you have to go back to May to see rates significantly lower. This is great news for anybody looking to sell Euros, however anyone with a requirement to buy Euros should consider their options now to protect themselves against further falls in the rate. 

The Christmas period is expected to be just as volatile as we expect more news from the EU summit that took place last week along with the typically reduced trading that happens at this time which makes the market more sensitive to any data releases. 

If you are buying/selling Euros what should you do?

If you have a euro purchase in the near future a forward contract enables you to fix a rate of exchange today for anything up too two years into the future and remove and risk from the market, protecting you from any volatility and giving you one less worry over Christmas. Alternatively if you think rates will recover, consider a Stop Loss order.  

A stop loss enables you to place a trigger at a pre-agreed level in the market to give you a ‘worse case’ scenario. In this way you can still hope rates recover, but have a 'safety net' should they fall. 

This is also perfect for any euro sellers at the moment, who may well be riding the rates in the right direction, however should the UK not find its credit rating downgraded we can expect to see it regain some of the ground it has lost to the single currency over recent weeks. 

Either way you look at the market it is a difficult time to gauge any future movements, reinforcing the importance if having a good currency broker on your side. 

Why not contact me for a free consultation? In this way we can discuss all the options available to you, so you can make an informed decision on when to fix your rate and what type of contract to take. 

Click here to send me a free enquiry now.

Weekly Economic Data that may affect exchange rates 

Monday – The only UK data of note today are the latest House Prices from Rightmove. IN the Eurozone, we have Trade Balance figures. In the USA there is a speech from the FED. 

Tuesday – Lots from the UK today including Consumer Price Index, Producer Price Index, Retail Price Index and a Bank of England Quarterly Bulletin. There is nothing of note from the Eurozone or USA today. 

Wednesday – Today we see the Bank of England minutes to the latest interest rate and QE decision. This could indicate future policy so will be closely watched by the markets. In the Eurozone we see Business Climate assessment from Germany, Industrial Orders from Italy, and EU wide construction output. In the States there are housing and Building numbers, and New Zealand releases its latest GDP numbers. 

Thursday – Retail Sales numbers from the UK today are a good barometer of overall economic activity. In the EU we have German inflation data, Italian Retail Sales and Trade Balance numbers. Over in the states we see GDP numbers, Inflation data, Home Sales and the latest manufacturing figures. 

 Friday – We end the week with a host of UK data: Consumer Confidence, GDP numbers, Public Sector borrowing and business investment figures. In the EU we will see German confidence and Import Prices, Italian Consumer Confidence, and a French Business Climate assessment. In the USA we have inflation data, Personal income numbers, and a consumer sentiment survey.
 

Getting the best exchange rates 

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day. 

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Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/12/poundeuro-rates-continue-to-fall.html

GBP/EUR & GBP/USD forecast 2012/2013

Thursday 13th December 2012 

 Good afternoon everybody. In this afternoon’s post I’m going to take a detailed look at Pound/Euro rates, and the forecast for where rates may go in 2012 and 2013. I will also have a look Sterling/Dollar rates. 

I will also run over some of the options and contract types I can offer for any currency requirement you may have in the next 2 years, to help you get the best exchange rates and make the most of your currency. 

Pound/Euro stable in the mid €1.23’s 

 

The Sterling/Euro exchange rate has fallen slightly in recent weeks, but still remains firmly above the 1.20 mark. The reason for the fall is twofold, and will be familiar to regular readers as it’s been the main driver of exchange rates all year! 

Firstly we have the progress made in Europe, which the markets have taken to be positive. This has seen the Euro gain some strength and thus become more expensive to purchase. We also have the threat of the UK’s credit rating being downgraded, which has taken some steam out of the Pound. 

Some in the market are now saying that the euro could gain further support after the European Union agreed to make the European Central Bank the bloc's banking supervisor. This is positive news for the Eurozone, and so could pull rates down further. Of course things are so volatile in the Eurozone, it’s impossible to predict what will happen in the coming weeks. You can read about the new Bank rules here.

What UK news is affecting the Pound?

On the UK side, data has shown that British factory orders rose this month, although there was little reaction in the currency markets with the Pound remaining largely unaffected. Of more important to Sterling at the moment are growth prospects and credit ratings. 

In his recent autumn statement, George Osborne downgraded growth forecasts and said the country will miss debt-cutting goals. This has increased concerns the UK will lose its prized AAA credit rating. Only the UK and Germany retain good credit ratings from all major agencies. This could of course weigh on the Pound should we be downgraded. 

In my opinion however moves in the Pound/Euro rate will be driven more by developments in the euro zone in coming months rather than what will happen in the UK. Markets are waiting to see whether Spain will apply for aid, triggering the European Central Bank's bond-buying scheme that is seen as providing a backstop to peripheral debt markets. 

So which way will Pound/Euro rates go now?

In a nutshell, if things remain positive in Euros, GBP/EUR rates could fall. Should there be any unexpected deterioration of the situation in any of the troubled EU countries such as Spain, Italy, Portugal or Greece, then we could see renewed weakness in the Euro, causing rates to climb again. 

Regardless of whether you are buying or selling Euros, simply sitting back and hoping the market will move in your direction invariably means you are simply chasing the market using hope as your only economic tool. A wiser strategy would be to use tools such as Stop Loss and Limit orders, so you can take control of your requirement and allow you to budget effectively for any requirement you may have in the coming months.

If you would like a free consultation on the types of contract we offer such as Stop Limit orders, then get in touch with me today. I can discuss your requirements, let you know all your options and give you my view on the current market forecasts. In this way you can make an informed decision on what to do and when to buy your currency. Simply leaving things to chance could cost you dearly. 

Click here to send me a free enquiry, and book your free telephone consultation now. 

Pound Dollar remains near 6 week high vs. US Dollar 

 

The Pound has recently been at a 6 month high vs. the US Dollar, however fell a little today during trading. Sterling pulled back somewhat because investors took some profits after the news that the FED has announced a new round of monetary stimulus, which was expected. 

Moving Forwards, rates I think will now remain above the .60 mark against the Dollar for the rest of the year, especially if we see hints that the Bank of England wills hold off from signalling further Quantitative Easing in the UK. 

If you need to buy US Dollars at the best exchange rates, there are 2 things you should consider. Firstly, you can fix the rate now while it’s so good, using either a Spot of Forward contract. A spot contract needs to be settled in full within 2 working days of booking your rate. A Forward contract allows you to fix the current rate for up to 2 years, and only lodge 10% of the total to be converted. The remaining 90% becomes due when you want to have your US Dollars transferred. 

A second option is if you think the rate will rise further. You can place a ‘Stop Loss’ order at a level slightly below the current rate. This means if the market drops, your currency is secured at that rate, protecting you from a further decline, and giving you a worst case scenario. The advantage of a Stop Loss is that if the market continues to rise, you can continue to take advantage of any gains, raising your stop level in line with market movements. 

Click here to send me an enquiry to find out more about these types of contracts. 

Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/12/gbpeur-gbpusd-forecast-20122013.html

Facts on nontradables in the Portuguese economy

The rise of nontradable sectors has been mentioned as one of the causes of low economic growth and external imbalances at the root of Portugal’s current predicament – João Ferreira do Amaral and Vítor Bento were among the first to ring that alarm bell. The ECB, the EU and the IMF (troika) seem to share the same view. The 2012 OECD Economic Survey of Portugal has also stressed the need for eliminating the distortions that tilted the Portuguese economy towards low-productivity domestically-oriented sectors. Recently, the President, Aníbal Cavaco Silva, and the Minister of the Economy, Álvaro Santos Pereira, have also been calling for the re-industrialization of the Portuguese economy.    

In a joint paper with Pedro Bação, we describe the main trends and jumps in the evolution of nontradable sectors, since the mid-1950s, using four different databases to shed light on different dimensions of this issue. From our analysis we stress the following points:

1. Despite the pattern of the growth of the share of services being similar to that observed in other developed countries, since the early 1990s it has been significantly larger than in most countries.

2. The shift to nontradables in Portugal has been fast and it occurred essentially at the expense of agriculture in the period 1953-95, and essentially at the expense of industry in the period 1995-2009.

3. In 2009, the share of nontradables (defined as the sum of services plus construction) in total GVA reached 68%, if we exclude open service sectors, and 81.1%, if we treat all service sectors as nontradable.

4. More than half of the change towards nontradables since joining the European Union took place in the period 1988-1993.

5. Finally, we show that construction and services facing a strong Government demand were the main drivers of the increasing weight of nontradables in the Portuguese economy since 1986.

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/12/facts-on-nontradables-in-portuguese.html

TAP: post-scriptum

I am glad and grateful that Exame Expresso and Jornal de Negócios yesterday followed up on the issue of TAP’s valuation in Gérman Efromvich's offer. They did the public interest a huge service. Mr. Efromvich’s bid was greedy, but he is pragmatic. He knows that if there is a second competitive sale process he is very unlikely to win the prize (TAP) even if he bids €2bn-€3bn and he would have to wait perhaps a year.  

He now faces a dilemma:

·         He may well try to “get the deal clinched” and “everybody happy” by offering anywhere from €500mn to €1bn (rather than €20mn). But he knows this will leave the sell side feeling like fools;

·         He may lobby in the expectation that the government powers ahead with the current offer – a real possibility with this government - , but this likely is, from his perspective, too risky a gamble;

·         He could, of course, walk away,   … but ...

·         He could also bid €2bn-€3bn and argue that the government would not get more if it decides to reopen the sale process.

So, how will this saga play out?

For the record, in my view, given the role of TAP to Portugal’s export sector, the government shouldn’t sell TAP at this point. 

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/12/tap-post-scriptum.html

Pound/Euro exchange rate forecast Outlook

Monday 10th December 2012

Good morning. Sterling Euro rates hit a 5 week low last week, before staging a slight recovery on Thursday and Friday. As always for a Monday, today I will take a look at what has moved the rates in the last week, and take a view on what the forecast for Pound/Euro exchange rates moving forwards. 

In today's report:

• Pound/Euro hits 5 week low before recovering on Friday


• Effect of budget statement on exchange rates


• Weakness after ECB speech pulls the rate higher again


• Round up of the week’s other data that may affect rates

Sterling vs. Euro; 

With last week’s Autumn Statement and data releases you would have expected substantial movement on both sides of the channel, and some significant movement for the GBP/EUR cross. Unsurprisingly with the ever so unpredictable currency markets the pair remained range bound with a 1 week movement within 0.65%. This week’s report will look at what has affected the rates and why Sterling seems to have put a stop to the recent decline in rates and strengthening Euro. 

 

So what happened with rates last week?

Markets opened at €1.2331 last Monday with a raft of data from the Euro zone, UK and States; Sterling was seen as the best performer as with a Purchasing Managers Index (PMI) of 49.1 (predicted 48.0). Across the Chanel, the Euro zone scored 46.2 with Greece coming bottom of the pile at 41.8. Albeit positive news for the UK sentiment it didn’t actually affect the rates much as the GBP/EUR cross seemed to be awaiting the Autumn Statement from George Osborne on Wednesday with Interest rate and GDP figures out on Thursday. 

What effect did the Autumn statement have?

The Autumn Statement was announced Wednesday with changes in Income Tax, Tax Relief, Capital Spending and Welfare; with the most worrying aspect being that debt reduction targets were behind schedule. This lack of progress could indicate towards a future downgrade of Britain’s AAA rating which would hinder the UK’s ability to borrow at current levels reducing the value of the pound. This could also mean further Quantitative Easing for the UK, putting Sterling at risk somewhat. 

Euro weakness pushes the rate higher again

There was however some good news for the Pound/Euro rate on Thursday as President Mario Draghi said “economic weakness will persist next year”. The European Central Bank (ECB) cut its growth forecasts and the Euro weakened as the mid-market moved up 0.5% within the space of an hour; further weakness continued through Friday as the Bundesbank slashed the 2013 German Growth Forecast from 1.6% to 0.4%. The Frankfurt based central bank did say it would recover to 1.9% in 2014. 

So from the 5 week low for the GBP/EUR cross, rates could come back up due to the weakness in the Euro zone. Alternatively, we could also see further Quantitative Easing (QE) out of the UK as debt reduction targets are behind schedule, and more stimulus might be required to help and bolster growth in the UK, potentially weakening Sterling. So the tug of war between Sterling and Euro continues, with no clear consensus on which direction things will go in the coming weeks and months. 

So what does this mean if you are looking to fix a rate or make the most out of your funds? 

If you are looking to purchase Euro’s at the moment, yes the rates have come down from the August High of €1.2878, but we're still looking pretty good at the €1.24 level. If you need to buy Euros, it's important to remember that at the end of last year you would have seen the mid-market nearer to €1.13. 

A typical purchase of €200,000 would now cost you over £15,000 less! Certainly if I needed Euros, I'd be happy to trade above €1.24 and would not want to risk losing out more should the UK have it's credit rating downgraded.

If you are looking to sell Euro’s and you are wary of the problems in the Euro zone or you are in the process of signing for a property a Forward Contract is a great tool for securing your price ready for completion. 

A Forward Contract takes the volatility out of the market and means you know exactly where you stand once you have completed either selling or buying a property abroad. 

Another option for Euro sellers is a Stop Loss order. This allows you to continue taking any gains, but should the market move against you, you can place an order to trade at a certain level, limiting any potential loss should the market go against you. 

To find out how Forward contracts operate, along with all the market contracts available to you hy not send me a free enquiry now. I can provide a free consultation on all the options available to you. 

Click here to send a free enquiry now.

Weekly Economic Data that may affect exchange rates 

Monday – There is no UK data of note today. There is however a raft of data from the Eurozone including German Trade Balance and wholesale prices, Italian Industrial Output and GDP figures, Greek inflation data and Industrial production, in addition to an EU wide investor confidence Survey. 

Tuesday – Today we have UK House Price Balance from RICS. There is also a bond auction in the UK. In the Eurozone we have the German & EU wide ZEW survey on economic sentiment. Over in the United States we see Trade Balance numbers and wholesale inventories. Further afield, Australia has a consumer confidence survey. 

Wednesday – It’s all about unemployment in the UK today, as we will see the claimant count, unemployment levels and average earnings data. Later in the morning we have a speech by one of the BoE’s MPC members, so this could cause volatility for Sterling. In the Eurozone inflation is the order of the day, with the latest numbers from Germany and France. Over in the USA we will see Imports and Exports, an interest rate decision from the FED, the latest FOMC economic predictions and a budget statement. 

Thursday – Unusually quiet in the UK for a Thursday, with only a CBI industrial trends survey. In the Eurozone we will see inflation data for Spain and Italy, and also Greek unemployment and the ECB monthly report. There is also a European Council meeting which will discuss the debt crisis. In the states we have inflation, Retail Sales & Business inventories. 

Friday – We end the week with Services & Manufacturing PMI from Germany France and the whole EU. Over in the US we have a raft of inflation data in addition to Industrial production. There is nothing of note from the UK.
 

Getting the best exchange rates 

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.

Click here to send me a free enquiry

Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/12/poundeuro-exchange-rate-forecast-outlook.html

Germán Efromovich’s offer for TAP

According to Jornal de Negócios, the only bidder for the privatization of TAP has made a revised final offer to acquire TAP which, not surprisingly, is lower than the original non-binding offer since he is the only bidder for TAP. According to JN, the government is disappointed but wants to negotiate which says a lot about whoever is handling the negotiation on the Portuguese government side, as I shall argue below.

Jornal de Negócios states that the Germán Efromovich is offering to assume TAP’s debt of €1,2bn (TAP’s net debt is in fact €1,05 bn, about 60% of which concerns its fleet leasing debt) and to inject €300 mn in the company. He would then pay as little as €20 mn to the government for the (complete?) ownership of the company, but according to Jornal de Negócios he wants to pay even less than the €20mn.

Maybe there are additional details not reported by Jornal Negócios, because typically this type of acquisitions are based on EBITDA (Earnings before interest depreciation and amortization) multiples. But if Jornal de Negócios is correct, Gérman Efromovich’s bid looks very very low – TAP seems much more valuable, as I shall argue below.

Ricardo Arroja wrote a very interesting post in Insurgente about TAP’s privatization, which called my attention because he looked at the balance sheet of TAP. Thus, Ricardo Arroja’s post made me curious and I analyzed TAP’s balance sheet.

Now, first, one correction to Jornal de Negócios. Germán Efromovich is not assuming any of TAP’s debt. TAP’s balance sheet already assumes that debt, i.e., TAP has assets which are worth about €300 mn less than its liabilities (including the €1,2bn debt). Any buyer would likely keep TAP’s debt on its balance sheet since in this way the buyer can maximize the return on investment and optimize his tax bill.

Now everyone assumes that TAP is over-indebted and worries about TAP’s negative equity. But businesses do not need positive equity levels to function. What they need is positive cash flows. TAP has positive operational cash flows and EBITDA and has managed to stabilize debt levels.

More important, TAP’s debt levels do not seem high at all for a company of its dimension. TAP’s interest and leasing costs are a small fraction of the company’s total costs, which means that capital, while important, is not the key variable for TAP’s business.

Perhaps the following example will clarify my point. If TAP uses half of the €300mn capital injection proposed by Germán Efromovich to increase its working capital, and the other half to reduce its stock of debt, its financing costs would fall by about €9mn, or by about 0.4% of the company’s total costs, i.e., by a negligible amount. This signals that while further capital is helpful – and might help TAP expand or better hedge fuel cost risks - , TAP will likely be able to thrive in the future even without any capital injection.

I do not have information on TAP's most recent financial numbers. However, the 2011 balance sheet indicates that TAP is in a situation where slight operational improvements in revenues and slight decreases in costs will result in a marked improvement of its results and reflect favorably on its balance sheet. A 5% increase in revenues and a 5% decrease in operational expenditures will likely result in improvement to EBITDA of about €250 million per year, or about 70%-80% of what Germán Efromovich wants to pay for TAP.

TAP’s EBITDA in 2011 was €106mn. A purchase price based on a multiple of 10 of the 2011 EBITDA seems a fairly run of the mill (modest) valuation for the company. It would mean TAP would be worth about €1bn, which less the €300mn capital injection means a sale price of about €700 mn. But if an improvement in EBITDA of €250 million relative to the 2011 performance is assumed, then TAP would be worth €3.2bn (already net of the capital injection).

But I am likely being conservative here. Gérman Efromovich owns airline companies. This means he is likely to obtain significant synergies between his different airlines.  Greater synergies mean larger EBITDAs, which mean TAP is likely much more valuable for this entrepreneur than the €3bn I estimate above.

In my view, TAP is on course – bar unexpected shocks - to become systematically profitable in the short term. Germán Efromovich will get his investment back very quickly. He is a shrewd investor and if he succeeds in his bid he will have a very high return on his investment.

But he must be innerly laughing at the apparently “naïve” selling side (i.e., the Portuguese negotiators) who are begging him to condescend to give a few more millions of euro or even possibly willing to pay Germán  Efromovich to get rid of TAP.

Finally, TAP is one of the country’s largest exporters and plays a key role in one of the country’s leading export industries (tourism). It also is one of the main airlines for connections to Portuguese language countries in Africa and South America (CPLP), some of which are also Portugal’s fastest growing export markets. Portugal’s adjustment requires a huge improvement in external trade for the current or any other adjustment program to succeed. From a macroeconomic policy making point of view one does not want to play around casually with one of the key players in our export industry precisely at this time in History. But none of this appears to be of any relevance to our decision makers.

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/12/german-efromovichs-offer-for-tap.html

Autumn statement effect on exchange rates

Wednesday 5th December 2012 

Good afternoon. The market has now stabilised after the Autumn statement by the chancellor. In this afternoons post I’m going to have a quick look at the effect of the statement, and also what is coming up in the next few days that could affect exchange rates. 

Effect of Autumn budget statement on exchange rates 

This is an easy one to sum up; there was little to no reaction at all! Sterling had been falling in the run up to the announcements anyway, and this morning was at a 1 month low against the Euro. As is often the case, the currency markets move more on rumour than actual fact, and the Pound was already vulnerable as investors braced for grim tidings from the UK's finance minister in his half-yearly budget statement. This is how GBP/EUR has moved today:

The market has already been anticipating a difficult Autumn Statement and this was for the most part already priced in to rates. Earlier this morning, the pound barely reacted to a survey showing Britain's service sector grew at its slowest pace in almost 2 years. The PMI number was below forecasts, but still just above the magic 50 level, which signals growth, which is probably the reason we saw hardly any movement. 

You can see in the chart above the market was already at its lowest before the speech, and the Pound/Euro rate actually recovered by around 0.3% just before Mr Osborne starting speaking. During the speech we saw basically no movement at all, as there were no surprise announcements. 

You can read a quick guide here as to what the statement contained from the BBC. The only real thing of interest was the scrapping of a planned 3p rise in fuel duty. Also of interest to the currency markets were the growth forecasts which are now predicted to be -0.1% in 2012, down from 0.8% predicted in the Budget. Forecasts for next few years are: 1.2% in 2013, 2% in 2014, 2.3% 2015, 2.7% in 2016 and 2.8% in 2017.

Quantitative Easing announcement tomorrow

Lowered growth forecasts could open the way to more quantitative easing by the Bank of England QE is generally perceived as negative for a currency. But if the fiscal austerity programme is relaxed too much that could also be negative as it would bring the UK's triple-A rating into question. 

The next announcement on QE is tomorrow lunchtime, when the Bank of England will announce whether or not they will increase the measures. We will also see the Bank of England and European Central Bank announce their latest decisions on interest rates. 

I don’t’ expect any surprises on either QE or interest rates. In the run up to Christmas it’s highly unlikely that there will be any changes, but depending on how economic figures are in the next few weeks, we may see more QE in the early part of next year.

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When you get in touch, remember to ask for Alastair Archbold and quote BLOG.
 

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Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/12/autumn-statement-effect-on-exchange.html

Banking Union and the supervision of 6000 banks

"Nobody believes it will work. Nobody believes any institution will be able to supervise 6,000 banks.” Wolfgang Schauble, Germany’s finance minister, FT 2012

"Our specific responsibilities include the oversight of about 5,000 bank holding companies, including the umbrella supervision of large, complex financial firms; the supervision of about 850 banks nationwide that are both state-chartered and members of the Federal Reserve System (state member banks); and the oversight of foreign banking organizations operating in the United States."Chairman Ben S. Bernanke,The Federal Reserve's role in bank supervision, Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C. March 17, 2010

I concede that 6000 > 5850. Not that 6000 >>> 5850.

P.S.
Question: how many Polish banks are...Polish?

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/12/banking-union-and-supervision-of-6000.html

Pound/Euro exchange rate forecast December

Monday 3rd December 2012
Good morning everybody. It's a new month, and today I'll take my usual retrospective look at what happened last week, why the Pound/Euro rate fell, and what the month of December may hold in store for Exchange Rate forecasts for the best Pound/Euro exchange rates.

In this week’s Report: 

• Pound/Euro rates fall on Bailout news 


• New Governor for the Bank of England 


• Round up of the week’s other data that may affect rates 

Sterling vs. Euro; 

Pound/Euro rates dropped to a 5 week low on Friday last week, as the Euro gained further strength due to the fact progress has been made with bailouts for troubled EU countries such as Greece and Spain. The main cause for the strength was the approval of Greece’s next bailout payment, which was uncertain in the early part of last week. As you can see from the chart below, rates have been in decline for some time, which will cause concern for anybody needing to purchase Euros. 

 
Why has the Euro strengthened? 

The strength came as the German parliament has approved a Eurozone bailout payment of 44bn euros (£32bn; bn) for Greece by a large majority despite unease about the cost. Before Friday's vote, Finance Minister Wolfgang Schaeuble warned German MPs that the fate of the Eurozone was at stake in Greece, which has had two huge international bailouts in recent years. "A Greek bankruptcy could lead to the break-up of the single currency area," he said. 

Despite the fact that Greece's government had carried out reforms and passed a harsh austerity budget, the release of the next round of money was delayed for weeks by a disagreement between its lenders - the International Monetary Fund (IMF) and European Central Bank (ECB). The European Commission has set out a timetable for integration, including plans for a separate budget and joint issuance of debt. 

In the short term the commission's chief, Jose Manuel Barroso, envisages a new fund inside the EU budget to speed up structural reforms. The instrument - essentially a fund for struggling economies in the 17-nation currency bloc - would require governments to sign "contracts" similar to the strict conditions demanded for bailouts. Mr Barroso said: "We need a deep and genuine Economic and Monetary Union in order to overcome the crisis of confidence that is hurting our economies and our citizens' livelihoods." 

The news was welcomed by the markets, and the Euro gained strength as a result, causing it to become more expensive and pushing GBP/EUR rates lower. 

New BoE Governor announced, what could this mean for Sterling? 

In other news last week, the appointment of Mark Carney as the new Bank of England governor has been generally welcomed. However, with an expanded brief which includes overseeing the health of the country's banks, it will be a tough job. 

The first foreigner to be appointed Governor of the Bank of England in its 318-year history said he was “going to where the challenges are greatest”. He is currently the governor of the Bank of Canada, and will replace Sir Mervyn King next summer after the Chancellor decided against another British candidate for the role. 

Mr. Carney, 47, who had previously ruled himself out of the running for the governorship, is credited with helping to protect Canada from the global economic crisis. It is one of the few countries to have recovered fully from the financial meltdown. His appointment came as a surprise to City experts who had predicted that Paul Tucker, the deputy governor, would be promoted. 

What this means for the Pound is uncertain. Some say he is more of a ‘hawk’ than outgoing governor Mervyn King, who for some time has been talking the Pound down. However the challenges that Canada faced are very different to ours, mainly as the fact they avoided recession was due to the fact they are a commodities based currency. We will have to wait and see what his approach means, but in general the news has been welcomed by the markets. 

Summary for Pound/Euro rates 

We have seen rates fall for several weeks now, due to renewed strength in the Euro. Despite UK growth forecasts being revised up, Sterling is failing to make any gains against the Euro. Given there have been warnings the UK may head back to recession, there is every chance rates could continue to drop away, however if we get better growth figures this week, the Pound could make a recovery. 

Regardless whether you need to buy or sell Euros, contact us today to discuss the different options you have available to you. It’s free to have a consultation, and in this way you can find out how to protect against the rate moving against you, and make sure you are making the most of your currency. 

Click here to send me a free enquiry. 

Weekly Economic Data that may affect exchange rates 

Monday – It’s the start of a new month, and the first data release of note is UK House prices from the Halifax. We will also see some UK inflation data this morning. In the Eurozone we have various inflation numbers which could dictate future interest rate movements. Elsewhere we have US Construction Spending, Vehicle Sales, Inflation data and a speech from the FED. 

Tuesday – Today’s UK data comprises Retail Sales numbers and Construction figures. The EU wide inflation figures at 10am could affect GBP/EUR prices. From Canada we have an interest rate decision. 

Wednesday – We kick off with Australian GDP figures. Later in the morning we have another host of inflation numbers from the Eurozone, in addition to Retail Sales. The UK also releases some inflation figures. Over in the USA we have Mortgage applications, Employment numbers, Factory Orders and Inflation Data. 

Thursday – An important day for the UK today. At 09:30am we have Trade balance figures. Later in the morning we have the latest decision on Interest Rates and Quantitative Easing. Both of these have been key to Sterling’s weakness recently. EU data today comprises of French Unemployment numbers, EU wide GDP figures and the latest interest rate decision from the European Central Bank. There are some Jobless numbers from the USA at 13:30pm and in the evening New Zealand announces its interest rate decision. 

Friday – We end the week with UK House Prices, Industrial & Manufacturing Production and the latest inflation numbers. There is also a GDP estimate in the afternoon that could affect the value of the Pound. In the EU we will see French Trade Balance data and German Industrial Production. Stateside we have Earnings data, Unemployment, Non-Farm Payrolls and a Consumer Sentiment Survey.

 

Getting the best exchange rates 

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day.
 

Click here to send me a free enquiry

Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/12/poundeuro-exchange-rate-forecast.html

Portugal and the welfare state, step 1

A recent article in the Financial Times (Portugal grapples with cost of welfare state) addressed recent statements by the prime minister on the reforms in the public sector.
The starting point was the statement a couple of weeks by the minister of finance on the (apparent) difference between what people want to pay in taxes and the welfare state benefits they want.
The discussion on the role and size of the state and how it is funded (and not the components of the welfare state) is a much needed debate in Portugal. But it cannot be done until February or March if it is  supposed to include the views and desires of the Portuguese population and if its to go beyond cut expenditures across the board.
The challenge for the discussion is how to be cut in terms of what the Government does - not only the always-mentioned quest for efficiency in Government provision of services but also which ones are to be provided by the Government.
This goes beyond knowing which charges people should pay when using Government services. And forces the need for clarification of concepts and roles of Government spending. One the more common errors of perception, which is also present in the financial times article, is people saying they could afford to pay more for health care at point of use - meaning usually that people accept income-based payments at the point of use. Fine. But the mistake is that such charges are usually a very small portion of total funding required, user charges account for less then 2% of total funding needs in the National Health Service. Increasing user charges to cover say 20% would probably lead most people to complain about it. Even the largest single user charge, use of emergency room in central hospitals, is about 10% (or less) of average cost of such episode - this is 20€ user charge mentioned in the FT article. The second aspect of this mistake is conceptual - redistribution  should mainly be done at the funding level, not at the point of use. If there is some correlation between income and need of health care (use), then payments at the point of use according to income may help, but they also destroy the insurance value of protection against uncertainty of health care expenditures. And this role is neglected (wrongly) in most popular statements.
From other areas we are likely to face good arguments for Government intervention, meaning that a careful discussion needs to be made.
Recognizing the importance of this discussion the prime minister said that a baseline proposal for cuts will be provided by February but changes are possible until the Summer, before the next budget proposal is built. This is reasonable. Sets a default situation, and then it is up to the political forces and to society to improve on it. Being too assertive at this stage will not allow for a proper discussion. Let's hope the Portuguese people can do it.

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/12/portugal-and-welfare-state-step-1.html

Pound/Euro forecast; rates could drop further

Monday 26th November 2012

Good morning. The Pound/Euro exchange rate fell quite a bit last week, and the forecast is for this to continue. This is partly due to events in Europe, but also due to the fact the Bank of England governor is speaking again this week, and could well talk the Pound down further. So what have I got for you in today's post?

 

In this week’s Report: 

• Pound/Euro rates in decline last week


• Bank of England speech this week could weaken Pound further 


• EU fails to resolve Greek/EU debt issues 


• Round up of the week’s other data that may affect rates

Sterling vs. Euro; 

Pound/Euro rates last week were largely dominated by discussions between the IMF and EU Finance Ministers, over a €44 billion Greek bailout. The single currency strengthened considerably, due to the optimism of the aforementioned plan, but was clouded mid-week by continued disagreements between the two deciding factions. As you can see by the chart below, rates have been in decline now for a few weeks. 

Reports on Monday last week outlined that an agreement was expected the following day that would allow Greece to access the bailout monies allocated from December 5th. However, following a twelve hour meeting no solution to Greece’s debt problems could be met, prompting Christine Lagarde to say that the meeting had yielded progress but the technical details could not be ironed out. 

The euro, which had been steadily strengthening due to the meeting’s publicity, retraced part of its gains as speculators were reminded that solving the region’s debt-crisis cannot be done by simply releasing bailout funds. 

What caused the Greek debt crisis?

 

The Greek crisis emanated from enormous borrowing which grew exponentially since joining the euro. Public spending soared after adopting the single currency; costs which were not offset through taxation, largely due to widespread tax evasion, making it impossible to balance the books. When the Global Financial Crisis occurred it wiped the foundations from Greece’s house of cards, and essentially made it impossible to repay their lenders due to the staggering debt-levels they had accumulated. 

The high emphasis on a Greek rescue stems from a fear of contagion. Contagion is the notion that if Greece were to default on their debts, a similar cycle of events could affect countries like Spain, Italy and Portugal. The cause is a result of the fear that these countries could follow Greece’s example and default on their obligations. 

Not only this, but the losses associated with a Greek default would significantly dampen Global liquidity; in a nutshell, when people are fearful and refuse to spend, economies become stagnant. Talks are on-going which for the GBP/EUR rate means that an agreement could see the rate drop further as the euro strengthens. However if there are more delays or compromise can be met, this could see the rate bounce back as the single currency will weaken. So things really could go both ways in the coming weeks. 

Mervyn King could talk the Pound even lower

One argument for rates dropping further, is a continuing weakness in Sterling. The Governor of the Bank of England is speaking on Thursday and is largely expected to pour cold water on Britain’s economic progress, as he did a few weeks ago. Many believe that this is an attempt to weaken the pound as a ploy to increase our competitiveness in the export market; as the EU is major trade partner. This comes despite some positive data from the UK which saw momentary retracements on the euro’s strength last week. 

How to protect against the rate dropping

If the euro is your currency of interest, send me a free enquiry and I can get in touch to discuss your options. If the Market appears to be moving against you, Forward Contracts and Stop Orders are great ways of protecting yourself from adverse Market movements. If the rates are going in your favour, Limit Orders allow you to set an optimistic level in the Market which can be automatically purchased, 24 hours a day, seven days a week. 

Send an enquiry now to find out how we can help you.

Weekly Economic Data that may affect exchange rates 

Monday – The main data that could affect GBP/EUR rates today is from Germany. We have a host of data from Europe’s largest economy, including Retail Sales, Import Prices and a Consumer Confidence Survey. Staying in Europe, we also have the EcoFin meeting, which covers areas such as coordinated economic measures, budgetary policies, public finances, capital movements and financial markets. Elsewhere we have Trade Balance figures from New Zealand, and manufacturing data from the USA. 

Tuesday – An important day for the Pound, as we will have GDP figures, House Prices and Business Investment measures. There is nothing major from Europe, but across the pond we’ll see US House Prices, Consumer Confidence, and Speeches by various members of the Federal Reserve. 

Wednesday – Nothing from the UK today. We do have some German inflation figures along with Spanish Retail Sales. IN the USA we will see some further Home Sales data, which is a good barometer of overall economic health. 

Thursday – A fairly busy day today. Starting in the UK we have Consumer Credit, Mortgage Approvals, and a Speech by the Bank of England governor Mervyn King. Be very mindful of this, as last time he spoke he talked the Pound down by a significant amount. It’s followed by a UK Financial Stability report. In Europe we will see Consumer Confidence, Economic Confidence, Industrial confidence along with German unemployment numbers. In the states we have Jobless Claims, Homes Sales and manufacturing numbers. 

Friday – The only UK data of note is consumer confidence and an inflation report. In the Eurozone we have Inflation numbers, unemployment numbers and Retail Sales. We end the week in the Americas with inflation numbers from the USA and GDP figures from Canada.
 

Getting the best exchange rates 

You want the best exchange rates, of course you do. That's why you're reading this blog to try and gauge your timing. Take the next step and send us a free enquiry and have a consultation on all the options available to you. 

It's free, it doesn't obligate you, and you may be surprised how much you can save by using us to get exchange rates that are up to 5% better than offered by banks. Click below to send your free enquiry now, and get a response the same day. 

 Click here to send me a free enquiry

Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/11/poundeuro-forecast-rates-could-drop.html

On Fiscal Unions

Important paper by Emmanuel Farhi and Ivan Werning on Fiscal Unions. (A reading to be reconcilied with macroeconomics if needed).

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/08/on-fiscal-unions.html

A Coherent Bund ?

I am puzzled by the primary market operations performed by Finanzagentur and its agent, the Bundesbank. Consider yesterday auction of the 1.5% bond of the Federal Republic of Germany of 2012 (click for official press release).
My reading is as follows:
The issue volume was 5 billion euro. Bids by primary dealers (institutions that have to take the bonds) amounted to 2.77 billion while bids by banks and other private agents summed 1.16 billion. Total Bids were 3.93 billion, well below supply. The Bundesbank accepted 100% of the bids by the primary dealers and approximately 72% of the competitive bids. Price did not respond because supply was artificially lowered through the retention mechanism: 1.39 billion of Bund were set aside in the account of the Federal Government (I presume an account at the Buba). The result is an average yield of 1.42% on the Bond. 
Why am I puzzled? I thought that interest rates in Germany were too low (and in Italy too high) according to fundamentals. If this is true, how are German auctions coherent with a normalization of the interest rate differentials and of the overall monetary policy transmission within the eurozone?
P.S.
Admittedly 5 billion is very small and practically there is a flight to quality (es: Siemens borrows at 0.375% for 2 years). Nevertheless coherence might be a good starting point. 

P.S.2
I am told that  my labeling of non-competitive bidders as primary dealers is imprecise. Most of them are primary dealers but not exclusively, they are bidders that focus on quantity instead of price and are willing to take paper at the average price.

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/09/a-coherent-bund.html

Back to national homework

As the plan for a deeper integration of the euro financial markets proceeds, ez-members need to continue their focus on macro rebalancing. An important aspect of the rebalancing relates to their fiscal consolidation plans. A new paper by Alberto Alesina, Carlo Favero and Francesco Giavazzi finds that: 1. Fiscal adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. More precisely: tax-based adjustments have been associate with prolonged and deep recessions while spending based adjustments have been associated with mild and short-lived recessions. 2. The heterogeneity in the effects of the two types of fiscal adjustments is mainly due to the response of private investment, rather than that to consumption growth. 

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/09/back-to-national-homework.html

Review literature on Fiscal Devaluations

Given the recent measures adopted by the government I post a small reading list on Fiscal Devaluations for the interested readers.

1. Emmanuel Farhi Gita Gopinath Oleg Itskhoki: Fiscal Devaluations
2. Ruud de Mooij, Michael Keen: Fiscal Devaluation and Fiscal Consolidation: The VAT in Troubled Times
3. Francesco Franco: Improving competitiveness through a fiscal devaluation: the case of Portugal (first attempt/cross section)
4. Francesco Franco: Adjusting to external imbalances within the EMU, the case of Portugal (second attempt/time series)

Source | The Portuguese Economy | http://theportugueseeconomy.blogspot.com/2012/09/review-literature-on-fiscal-devaluations.html