The pound is on the brink

[baypond]

Is it the pound getting stronger or the euro getting weaker?

Please dont say both as that does not fit with my black and white view of the world [:P]

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The usd index stayed pretty stable. The EURO trade weighted index went down and the GBP TWI went up by a little more. So you would probably say it was mostly GBP strength.

[WJT]

The euro has strengthened against the dollar or vice versa. A little over a month ago it reached .80 and now has recovered a little but is still at only 71.54. So that would suggest to me that the pound is strengthening not the euro weakening.

[baypond]

[quote user="WJT"]The euro has strengthened against the dollar or vice versa. A little over a month ago it reached .80 and now has recovered a little but is still at only 71.54. So that would suggest to me that the pound is strengthening not the euro weakening.[/quote]

The margins are all fairly small, and it depends on what timeframe you are looking at. The story of the last 2 months is that the USD has weakened. However GBP has strengthened more against the USD than the EUR has (so GBP has strengthened relative to the EURO). In the last few days, the EUR has fallen ag the USD more than GBP has fallen against the USD so the number of EUROs per GBP has moved up again.

[WJT]

Yes, I agree but I don't agree that it is a small amount because I was going to transfer some before the fall.[:(] That is over a 10% drop in the Dollar in a month. It did dip last week at 70 but still awful!

[allanb]

[quote user="baypond"]The story of the last 2 months is that the USD has weakened. However GBP has strengthened more against the USD than the EUR has (so GBP has strengthened relative to the EURO). In the last few days, the EUR has fallen ag the USD more than GBP has fallen against the USD so the number of EUROs per GBP has moved up again.[/quote]Well, that makes it fairly obvious what we should do next.

[Graham & Brenda]

I have to say that I am grateful for small increases. It was good to be able to withdraw €350 with my Nationwide card today and for it to convert as £299.18, an effective rate of 1.1699

[baypond]

[quote user="allanb"][quote user="baypond"]The story of the last 2 months is that the USD has weakened. However GBP has strengthened more against the USD than the EUR has (so GBP has strengthened relative to the EURO). In the last few days, the EUR has fallen ag the USD more than GBP has fallen against the USD so the number of EUROs per GBP has moved up again.[/quote]Well, that makes it fairly obvious what we should do next.

[/quote]

Well I trade foreign exchange and I couldn't honestly give you reliable advice on the future path of currency movements. The only advice I think is really relevant is:

Make sure your liabilities are in the same currency as your income. Otherwise you have exchange rate risk that at some point could very easily force you to leave your adopted country.

Easily said, harder to follow unfortunately. At the very least you have to be able to survive at least 50% fluctuations in the exchange rate and still be OK, sothat you can afford income in one currency and expenditures in another.

[Jay]

Toxic debt fears undermine euro

This seems to be news. Didn't everyone know this and wonder why it has not been reported earlier?

[baypond]

[quote user="Jay"]

Toxic debt fears undermine euro

This seems to be news. Didn't everyone know this and wonder why it has not been reported earlier?

[/quote]

I agree it is quite baffling that this news has not gained greater column inches. The U.S banks have just been through a very transparent 'health check' which resulted in steps to ensure the bank's balance sheets could withstand further economic stress. In Europe, these 'health checks' have been opaque. Some countries have performed them, but do not divulge methodology or data.

I think the main difference is down to different accounting procedures (although I am not an expert here by any means). Basically, US banks have to take 'mark to market' profit and losses. This means that if they buy an asset at 100, and the market later prices it at 20, then they have to take an 80% mark to market loss, and report it in their quarterly earnings. As I understand it, the rules on EU banks place many of these assets under accrual accounting procedure. This means that if they buy an asset at 100, they leave it marked on their books at 100 until it expires (or defaults) even if these assets are marked at 20 by US banks. This means that whilst US banks have been forced to clean up their balance sheets with capital injections and writedowns, it is feared that most EU banks have not disclosed their true losses and will continue to have impaired balance sheets for many years to come. The US, IMF and UK have all highlighted this issue recently, but EU countries do not seem to be very keen to force the issue.

[Scooby]

Sorry Baypond you are completely wrong.  European banks have to FV ASB's, derivatives etc.  Remember the hated IAS39?  In fact, until October last year (when IAS39 was modified) the rules were even more onerous for European banks.  The modifications were introduced to level the playing field and remove the competitive advantage the US banks had. (US banks didn't have to FV mortgage backed securities when the market for those securities was frozen - meaning EU banks were forced to take massive writedowns but their US counterparts weren't).   

[baypond]

[quote user="Scooby"]Sorry Baypond you are completely wrong.  European banks have to FV ASB's, derivatives etc.  Remember the hated IAS39?  In fact, until October last year (when IAS39 was modified) the rules were even more onerous for European banks.  The modifications were introduced to level the playing field and remove the competitive advantage the US banks had. (US banks didn't have to FV mortgage backed securities when the market for those securities was frozen - meaning EU banks were forced to take massive writedowns but their US counterparts weren't).   

[/quote]

I will check, but my understanding is that European have toxic assets on their books marked at 80 /85 cents in the dollars, that have been marked at 20/30 cents in the US, meaning that there are significant mark to market losses tat havn't been taken yet in the EU.

The last time I looked, the exposure of European banks to subprime etc is much the same as US, and yet the capital raised, and amounts written off are far lower in the EU.   I am popping out but I will get some details later.

The fact remains that IMF US and UK are concerned about the lack of transparency in EU bank's disclosures and the numbers do not stack up.

[allanb]

The mark-to-market principle makes sense, IMHO, as long as there is some reasonably objective way of calculating or estimating market value.  But surely a large part of the problem, where so-called toxic assets are concerned, is that nobody has any real idea of what their market value is.

You may be able to do a scientific calculation based on known factors like interest and maturity, but if if there are doubts about the borrower's ability to repay - or a guarantor's ability to cover his guarantee - the asset's "market value" is guesswork, isn't it?

[JMB]

FT article:      http://www.ft.com/cms/s/0/e06f566c-576f-11de-8c47-00144feabdc0.html?ftcamp=rss

[Jay]

[quote user="John Martin BRADLEY"]

FT article:      http://www.ft.com/cms/s/0/e06f566c-576f-11de-8c47-00144feabdc0.html?ftcamp=rss

[/quote]

I already gave the link in the title - sorry should have made it clear.

[JMB]

Sorry Jay I didn't mean to steal your thunder.

[Sprogster]

Market sentiment has been turned on its head by recent economic data seemingly showing the recession in the UK maybe lifting, whereas the eurozone  position is worse than expected, probably not helped by an over valued euro against most major currencies, damaging exports.

Although your guess is good as anyones, there is a good chance that we will be looking at between 1.25 and 1.30 £ to euro, by this time next year. Which is probably where it should be using the Big Mac fair value test! 

[Alan Zoff]

Not that long ago, the "experts" were saying that the UK was in the worst financial position of the main economies and likely to be the slowest to recover. But a few months later, "experts" are saying the UK economy is recovering quicker than the rest.

So much for experts. (It was - supposed - experts who created the problems, of course.)

[Bugsy]

1.18 this morning ......................going up !!

[AnOther]

[quote user="Alan Zoff"]Not that long ago, the "experts" were saying that the UK was in the worst financial position of the main economies and likely to be the slowest to recover. But a few months later, "experts" are saying the UK economy is recovering quicker than the rest [/quote]There is no recovery in UK. All that has happened is that having been in perpetual denial the Eurozone have finally acknowledged that they have far bigger problems then they were either willing to recognise or admit to and that has dragged the € down. That and the fact that for a year the or so £ has been consistently hammered by ill advised or speculative public commentary by politicians.

[JMB]

Three lots of goods news for the pound this morning at 10h30.  Should result in an albeit temporary gain in the pound against the euro. 

[mint]

Come on, JMB, give us a link or at least explain to us what the good news is.

The rate, BTW, is 1.1853 a few minutes ago. 

[JMB]

Sweet17, seeing as you asked [:D]

http://www.forexfactory.com/ 

Go to today's calendar and you will see at 10h30 French time there were three events (data release / news items) that affect the pound.

The first, the CPI y/y is the Consumer Price Index year on year.  An explanation of why this is important news is found by clicking the little blue rectangular DETAIL icon.  The previous value was 2.3%.  The forecast value was 1.9% and the actual was 2.2%.  As actual was better than forecast and as this is a high impact data release, one would expect the pound to became stronger (all other things being equal) for at least a little while.  And this is what it did.  The price then went in favour of the euro for a while (price retraced until it hit (exactly) the 50% Fibonacci retracement level) and it is, as I type, heading in the opposite direction - one that is good for the pound.  In the next few hours one can expect price to continue until it retouches the low of the day 0.8432 and it may continue until it reaches key support levels like S1 at 0.8426, or the monthly S2 at 0.8423 or other Fibonacci extension levels including the 38% around .8405, the 61.8% at around .8389 or the 100% at .8363.

There are no other big news items today, so short of that interloper Brown getting forcibly removed from office things will probably keep going as they are for the time being.

It is worth noting that on the Euro Pound daily chart it is showing early signs of a slow down (which could lead to a retracement) in the rate at which the pound is gaining against the euro.  So my unasked-for advice is don't expect the current trend to keep going for much longer. 

You will see on the calendar there are several important pound related events tomorrow, so expect some fireworks and price volatility.  Anything could happen.

And before any of you get the idea into your head that trading forex sounds easy is a great way to get rich quick, let me tell you with great authority, that trading forex for 99% of people who try is a sure-fire way to throw money down the drain.  Don't do it.  It is a very complex thing and the game is heavily biased in favour of the big players.  Sorry to sound so belligerent, but it makes me so cross to see all these ads floating around boasting about how you can make lots of money trading FX.  So many people I know have lost their shirt - fortunatley for me I live in a hot country and don't wear shirts so I no have no shirts to lose [Www]  

[mint]

JMB, thank you for taking the time to explain in such detail.

Serves me right for asking![:D][:D][:D]

[JMB]

Bet you wish you hadn't asked now [:D]

[Sprogster]

Expect the £ / Euro rate to test 1.20 sooner rather than later.