Foreign Exchange Watch

Slim Buddha wrote:

cactus flower wrote:

Slim Buddha wrote:

The dollar seems to be retaining recent strength in the forex market across the board with MAs, stochastics and RSI analysis all indicating that this is set to continue. On a fundamental level, I think there are a couple of logical reasons for this.

1. All the wholesale prices for major world agricultural and mining commodities including oil are priced in dollars and
2. there is a major unwinding of hedge fund positions and CDS/CDO interbank positions occurring for which dollars are needed.

Anybody else got any views on this?

I'm out of my depth in the detail of this, but is there a feeling that the talk of a new Bretton Woods may come to nothing ? Talking about it is one thing, but doing it quite another. It might be the sort of thing to happen step by step, or else if there was a complete collapse of the dollar. The euro is not looking perky at the moment because of the E.European and Latin American loans.

No doubt about it, Bretton Woods needs updating. No longer relevant to todays environment. But asking Dick Cheney to voluntarily give up a piece of American power is the ultimate asking of a turkey to vote for Christmas. It won't happen. The dollar is not going to collapse for a while but, like youngdan, I see it as a long term sell. For the reasons I outlined above, I think it will remain bid short term. Yen and, to a lesser extent, Swiss Franc, safe havens at the moment.

I yen for a yen

cactus flower wrote:

Slim Buddha wrote:

cactus flower wrote:

Slim Buddha wrote:

The dollar seems to be retaining recent strength in the forex market across the board with MAs, stochastics and RSI analysis all indicating that this is set to continue. On a fundamental level, I think there are a couple of logical reasons for this.

1. All the wholesale prices for major world agricultural and mining commodities including oil are priced in dollars and
2. there is a major unwinding of hedge fund positions and CDS/CDO interbank positions occurring for which dollars are needed.

Anybody else got any views on this?

I'm out of my depth in the detail of this, but is there a feeling that the talk of a new Bretton Woods may come to nothing ? Talking about it is one thing, but doing it quite another. It might be the sort of thing to happen step by step, or else if there was a complete collapse of the dollar. The euro is not looking perky at the moment because of the E.European and Latin American loans.

No doubt about it, Bretton Woods needs updating. No longer relevant to todays environment. But asking Dick Cheney to voluntarily give up a piece of American power is the ultimate asking of a turkey to vote for Christmas. It won't happen. The dollar is not going to collapse for a while but, like youngdan, I see it as a long term sell. For the reasons I outlined above, I think it will remain bid short term. Yen and, to a lesser extent, Swiss Franc, safe havens at the moment.

I yen for a yen

Your yen may be for a yen, cactus flower, but I need all the Swiss Francs I can get. And a Swiss franc is worth 82 yen! At least with €/CHF at 1/1.44, Christmas in Dublin will be cheaper this year than last.

Lots of things happening now with Interest rates and currencies; I put a denninger video on the right where he has now started watching the currency markets - he says that when things happen in this arena they happen swiftly, often horribly swiftly. He concludes by saying there's still value in buying dollars though ..

Also in the IT today a report that Iceland has raised interest rates to 18% to try to protect its currency

Quote :

CRISIS-HIT Iceland raised its key interest rate six points to 18 per cent yesterday in an attempt to rescue its enfeebled currency.

The announcement was presented yesterday as a condition of a $2 billion loan agreed on Friday with the International Monetary Fund (IMF) to woo back foreign capital into the starved economy.

Two weeks after cutting rates, the finance ministry said the policy reversal was a "temporary measure" necessary to support the krona.

This is the strictures the IMF impose on you - 18% would stop a lot of spending fairly big style but this would also surely mean that everyone's loans would accrue interest at that rate ? ouch.

The 4 billion loan from Russia might come with no strings attached though ...

Quote :

He has declined to rule out a Russian offer of a €4 billion loan.

The interest rate hike will hit homeowners already facing dizzying rises in mortgage repayments and businesses facing wage payments in the coming days.

Hopes however that the rise in the interest rate would help the enfeebled Icelandic krona were short-lived yesterday. The currency plunged to Kr250 against the euro, a week after trading was effectively suspended at Kr152. Before the crisis began, a euro was worth about Kr80.

http://www.irishtimes.com/newspaper/finance/2008/1029/1225197273274.html

What's going on at all? Imagine suddenly having to pay 18% interest on your mortgage because your currency collapsed ... On the other hand both the Fed and the Bank of Japan have run out of cuts to make to their interest rates ... Japan is down to half a percent and the Fed is expected to cut down to 1%. And then there's Hungary ...
http://www.reuters.com/article/topNews/idUSTRE49N5VU20081029?feedType=RSS&feedName=topNews

Not much going on this morning so far. Dollar weaker against the €, stronger against the yen. € up 2 yen and against the Swiss Franc at 1/1.48. € v Sterling still under 80. I reckon we will see a relatively quiet week ahead of the US unemployment figure on Friday if the election, and the prediction of an Obama win, has been more or less fully priced in to current levels.

The G20 meeting was a lot of "expectations met" but not much more than that if the forex market this morning is anything to go by.

€/$ at just under 1.26
€/£ at .8550
$/CHF at 1.195
$/ Yen at 97.20
€/Yen at 122.40 up 2 Yen.

More or less unchanged with the "bigger" moves technical in nature, mainly in Yen. The dollar may get moved in a fundamental way in either direction later this week on figures and particularly on the outcome of negotiations relating to the auto industry. There are a myriad of problems associated with this. The bank bailout was necessary because no economy can function without credit. However, the US car industry is the architect of many of its own troubles and a lot of the pain it is enduring is self-inflicted. Furthermore, if the US government bail out the car industry, where does the bailout culture stop? The steel industry? The coal industry? Just where do you draw the line? And how much will the whole lot cost? Balanced against that is the fact that each job in the Big Three has another 3-4 jobs directly, in the case of auto industry suppliers and indirectly, in the case of the wider economy, dependent on it. In the worst case scenario, the failure of all three companies with no bailout possible could create an extra 3 million unemployed within 12 months of them folding. That is a massive figure. The debate in Congress should be fascinating.

Has the emphasis yet shifted now from preoccupation with finance to the performance, or lack of it, of the "real" economies? Will it shift? Japan went into recession formally today.

Cactus Flower

The problem is it is difficult to plan ahead as no one can say with any certainty if the investment is worth while. Given time cars will fall apart and photocopiers break down and need replacing.

As demand drops often production becomes less efficient and unit costs go up as fixed costs remain constant.

Uncertainty is a major factor in recessions.

cactus flower wrote:

Has the emphasis yet shifted now from preoccupation with finance to the performance, or lack of it, of the "real" economies? Will it shift? Japan went into recession formally today.

The auto industry's problems in the US are very real. And that is why the auto industry bailout debate will be fascinating. Here we have an industry which is largely responsible for many of its own problems. Obama is on record as saying that the Korean auto problem was killing Detroit. Korea exported 770,000 cars to the US last year. It imported only 5,000 US cars. Hidden in those numbers is the fact that 200,000 of those cars
were manufactured in Alabama. The fact is that Detroit is badly managed. A failure to invest in R&D in the 90s and since has led them to make cars for which there is a drastically shrinking market and no models coming on stream where demand is greatest.

Should these companies get a bailout? The Republicans seem set to vote against a bailout. Obama is in favour (no surprise coming from Illinois). But if Congress gives them $25 billion, when will they be back for more? Because $25 billion is nowhere near enough.

Does this mean the dollar is doomed? I read that the US is still the biggest and most competitive manufacturing country in the world.

How is it that it isn't worth while to invest in making cars there?

cactus flower wrote:

Does this mean the dollar is doomed? I read that the US is still the biggest and most competitive manufacturing country in the world.

How is it that it isn't worth while to invest in making cars there?

The debate this week will be the Economic Argument versus the Political Argument. The Economic Argument says let them go. The Political Argument says "We cannot afford to have 3 million unemployed if we don't bail them out".

Before the debate in Congress kicks off however, the GM begging bowl has already made an appearance this week. In the Bundeskanzleramt in Berlin, Angela Merkel has received a delegation from the GM subsidiary Adam Opel. The car industry is a big employer in Germany too and all eyes will be on Frau Merkel to see if she aupports a request for €500 million for what is legally an American company. Because if that money goes to Opel, BMW, VW, Mercedes, Porsche, Audi and anybody else who makes cars in Germany will view this as a precedent-setting move.

Never underestimate the ability of American exporters. The Americans can grow, classify and transport more rice at a cheaper price and get it onto Japanese supermarket shelves than the Japanese can.

It would take a lot of money to modernise car production in the USA. Wrong models. Rice is easy by comparison, but they could pull the economy back into order.

If Merkel feels compelled it should be in the form of purchasing the equity. Personally I would let it fall the other manufacturers produce better cars.

How you feeling about sterling?

Working for a company that imports from the Euro zone, business is grim at the moment. This, however, will surely never happen -

http://www.guardian.co.uk/commentisfree/2008/nov/16/comment-will-hutton-euro

Hutton saying that conditions are perfect for sterling to join the Euro - political suicide of course.

Atticus wrote:

How you feeling about sterling?

Working for a company that imports from the Euro zone, business is grim at the moment. This, however, will surely never happen -

http://www.guardian.co.uk/commentisfree/2008/nov/16/comment-will-hutton-euro

Hutton saying that conditions are perfect for sterling to join the Euro - political suicide of course.

That's a great thread - I'll have to go back to it again to read more of the comments. This is one:

Quote :

Money has to represent value, resources, or it is worthless. In order to visualise the folly of the present situation, ask: what would be the result if everyone simultaneously tried to exchange their money for value? There would be not enough resources in the world. A vast quantity of the world's money represents a claim on future resources which we may never see, which may never exist. If they exist, they may be resources required for the survival of future generations. The economy, like a bank or an insurance company, has adopted an absurd level of risk in its exploitation of our environment. And we, the human resource, the workers and taxpayers, have been pledged by our government to deliver value over an indefinite number of future years.

When I look from my window I see the earth is still out there, nothing has moved. The earth's resources appear much as they were before the crisis developed. What broke down was the economic model that determines how we think about what we are doing. This is where change must be made. An economic model that excludes resources management will have as short a future as the greater portion of the human race.

Personally I would prefer an end to Sterling as it is one more currency and variable I could do without. Having a small currency all of your own gives you about as much freedom as Buchenwald. I prefer stability and being able to go to Paris or Dublin without paying a bank a fee.



There are a lot of people that I know now singing the praise of the Euro. I wonder why? Also the French and Germans made some interesting comments regarding the need for stability rather than refloating the economy. I took it to mean that they were not following Brown down the road to La La Land, and there was political moves afoot. A Euro sceptic UK brought to heel would suit many.

Sterling is fragile and can not withstand the abuse that it is about to suffer.
UK interest rates are going to drop further, another 1/2% before Christmas seems likely and there will be a give away budget based on borrowing. So what chance of Sterling recovering, especially when that idiot of a shadow Chancellor giving the game away? What happens if there is a run on Sterling?

I think the conditions for selling the Euro to the British electorate are improving by the day. The Euro has weaknesses especially in relation to Italy and to a lesser extent Ireland and Spain but Sterling is an accident waiting to happen.

The prospect of a run on the pound seems to be much talked about. Is it that the UK economy is tmuch too much reliant on the finance rather than production side?

If the euro was reserve currency, that would bring its problems in terms of a stronger currency?

I don't think I am convinced that the dollar will be gradually abandoned drip by drip. There may be a slide, but when something goes, a tipping point is usuall reached after which it becomes a crash.

cactus flower wrote:

The prospect of a run on the pound seems to be much talked about. Is it that the UK economy is tmuch too much reliant on the finance rather than production side?

from Atticus' Guardian article above

Quote :

For years Britain has indulged the City, allowing our financial system to grow four and half times the size of our GDP, a more modest version of Iceland, Ireland and Switzerland, but with the same risks.

Quote :

If the euro was reserve currency, that would bring its problems in terms of a stronger currency?

I don't think I am convinced that the dollar will be gradually abandoned drip by drip. There may be a slide, but when something goes, a tipping point is usuall reached after which it becomes a crash.

Surely the country will not be allowed to join the Euro with all the financial storm raging around, even if they wanted to?

Auditor #9 wrote:

Surely the country will not be allowed to join the Euro with all the financial storm raging around, even if they wanted to?

That is a very difficult question with all sorts of major political consequences.

The UK government does what the City wants. The Financial institutions wanted to stay out so they did. Many other businesses would prefer to be in and the relative strength has changed. If they get through this crisis on their own the little Englanders will be insufferable.

If the opportunity arose it would be politically difficult to refuse as the consequences could be dire. Hell has no fury like the maiden scorned. There are those who wish the break up of the EU. There is more than a little naivety as to who's interests this would serve.

It would be a difficult decision to make at an inopportune time.

Squire wrote:

The UK government does what the City wants. The Financial institutions wanted to stay out so they did. Many other businesses would prefer to be in and the relative strength has changed. If they get through this crisis on their own the little Englanders will be insufferable

The Financial system in the UK is 4 times the GDP there according to the article above - that's amazing. That must be coming to a different ratio though now - and did this industry mushroom up so much in the last ten or so years only ?

It's a minority who kept the country out of the Euro perhaps but if the ordinary voters as opposed to the crony capitalists got a referendum now would they vote for it ? Maybe ordinary Britons will be fighting their own on the beaches, in the backyards soon enough if we start to see a run on STG, although the article said that Ireland was worse

My girlfriend's Christmas present came through on my credit card statement today. Bought it last thursday for a £/€ rate of 0.848. Part of it was a necklace which cost 36 euro, it was 61 on Grafton Street. Whatever about the economy I am not going to be ripped off to that extent.

I bought a Wispa Bar on Grafton Street on Saturday evening - 99c!!!

Auditor #9 wrote:

The Financial system in the UK is 4 times the GDP there according to the article above - that's amazing. That must be coming to a different ratio though now - and did this industry mushroom up so much in the last ten or so years only ?

London has always been a city of international trade. Banking and Insurance have been strong for a long time. I am not sure if those sectors has increased markedly in recent years, but the strength is a lot wider. Much of their service sector is international. The Architectural Practices, Ardvertising Agencies etc. It is also a centre for the Arts. What attracts me is the diversity of expertise and it attract people from around the globe and has a world wide network of contacts. It is hard to think of another city in Europe like it. Paris is a museum by comparison.

Auditor #9 wrote:

It's a minority who kept the country out of the Euro perhaps but if the ordinary voters as opposed to the crony capitalists got a referendum now would they vote for it ? Maybe ordinary Britons will be fighting their own on the beaches, in the backyards soon enough if we start to see a run on STG, although the article said that Ireland was worse

I have no doubt that outside the Euro Ireland would be sinking like Iceland.

There is strong anti Europe sentiment in the UK. It has been fuelled by certain press Barons who have their own agenda. The English have a love hate relationship with Europe. It is like sibling rivalries particularly with France. They love the country and life style but the French!! To many Europe has meant war after pointless war and why get involved? The British are not used to playing second fiddle, but they are fairly astute diplomats and they will play their card well and play a long game.

Whilst the English man's home is his castle he also tends to vote with his pocket. In a situation where Sterling looked like an expensive liability I have no doubt that it would be dumped without much ado. However with that decision would come all sorts of considerations regarding control of the economy. It will only happen when the Banks and Sterling are weak, but if it does happen I think Euro gains and the British economy benefits if rate on joining is anything like current values.

I don't agree, Squire. There is no way the Brits would sink Sterling. They are irrational about Europe "fog on Channel, continent cut off" and have huge jingoistic tendencies, at least while I lived there enyway, to start rewriting history and going on about how wonderful the Empire was. As someone who got the sharp end of the Empire, taught through the Irish school system, I'm afraid it put me off my lunch! Many don't talk about Sterling, they talk about "our pound"... and get this, business would love to join the Euro, it's John Bull the voter who is saying NO. 70% would bail out of the EU given half a chance. Having said that, they may be closer to joining now....we (the EU) may have to bail them out. The City of Londres is to the UK double what our construction industry was to us, and they have war debts and PFI to service. The Observer, usaully the chosen mouthpiece of New Labour when they want stuff published, referred to Britain as a mega Iceland 2 weeks ago. Sez it all, really.

Expat

Interesting how the UK and Ireland managed to follow similar paths. Almost a race to oblivian.

London's needs has dominated economic policy in the UK for 100 years and there is no question that it has been to the detriment of the economies of the regions. However I wouldn't compare it to the Irish construction industry. Firstly I wouldn't run down the Irish construction sector, they did not create the bubble and they do create wealth. The economy of the South East is a diverse beast and much of it is competitive and skilled.

True there was nothing nice about the British Empire or any empire for that matter. However as with all Empires, irrespective of their motives, not all they did was bad and looking back at past wrongs should not obstruct possible future collective gains.

The English relationship with France is an interesting one and probably shaped much of English opinion regarding Europe. However there are many in middle England with close links to the continent and there is absolutely no doubt that business would prefer to be part of the Euro zone. My reading would be that that did not suit the interests of the financial sector. However they are a bit more contrite recently.

The problem as you correctly point out is the John Bull and the jingoistic press and it isn't just the tabloids. The Telegraph is virtual myth when it come to things European, well anything really.

Many people holiday in Europe, own property there and an increasing number have married and work abroad. Some have retired to warmer parts. Attitudes change and with each year the citizens of the UK are more involved with Europe.

I don't think that a love for the British Pound is set in stone, it has more to do with the rantings of sections of the press and political nutters like the BNP and UKIP. It is almost a religious chant, issued without thought, save our pound and way of life nonsense. Also out in the Shires there is a resistance to any change, but that is just innate conservatism rather than jingoism. Things change ever so slowly in Hereford and Shropshire.

Believe me if interests rates rise to 20% to support Sterling public opinion will change in a flash! In the long run a Euro zone with the UK in will be stronger for it.

I think the war debts were paid off 3 years ago. As for the PFI's don't start me. Utter stupidity.

It is pretty hard to argue that Ireland outside the euro would be sinking like Iceland. Ireland at the moment is going straight to Davy Jones Locher.

Due to the euro it is going to be many times worse. There will be no inflation/devaluation to cushion the blow and bankruptcy faces one and all. This was mentioned on todays Independent that hundreds of companies were on the verge. The writer was either deliberately not telling the truth of the situation on orders or maybe he is too thick to know what would be happening if Ireland still had an independent central bank and currency.

It is no coincidence tat Lisbon2 is being pushed but hopefully people are smart enough to figure it out

There is no hurry to push Lisbon 2 I would wait a bit.

They know that they don't have the luxury of time. Anger is rising and are people going to look to Sarkozy for salvation. I hope not.