Forex Flash: Squabbling over FX – Societe Generale
FXstreet.com (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale begins by noting that yesterday's Coface country risk conference was a thoroughly downbeat affair that ended with a 'cri de coeur' for a weaker Euro, as European (ex-German) industry seeks respite from devaluationist tendencies elsewhere. He writes, "See what you've done, Mario? Even Nouriel Roubini can't bring himself to forecast a return to recession in the US but nobody holds out hope for growth in the Eurozone."
One man who may find it easy to talk down his currency is David Cameron. The pound is already under pressure. Promising a referendum on EU membership can send it lower. Cameron will deliver his delayed speech on the UK's relationship with Europe this morning, and press comments suggest he is going to promise a referendum on EU membership in the next parliament, should the Conservatives be in power at that point. Juckes doesn't believe that Cameron wants the UK to leave the EU, but he does want to change the relationship with the Eurozone countries as they move towards closer ties in the wake of the financial crisis.
He continues to add that the risk, obviously, is that a promise of a referendum will see firstly, little enthusiasm from the UK's European partners to re-negotiate the terms of membership, and secondly, growing concern about what economic isolation could do for the UK. He adds, "A vote wont happen until 2017, if at all, but the pound can react much quicker than that and this is another potential drag. A weak economy, a triple-A credit rating in danger of downgrade, export volumes which are lower than they were in 2008, and a more central bank than the ECB, is not a recipe for a strong pound. Today's labour market data will need to avoid disappointing if we are to avoid another rapid spike higher in EURGBP to 0.85 and beyond."
The Spanish bond auction results highlight once again how much the market mood has improved. Strong demand (particularly strong foreign demand) and falling yields are positive, though Juckes feels that context is important. He adds, Spain's ability to issue debt at 5% is better than it was but that's still more than twice the yield the US pays and still an awful lot higher than the nominal growth rate of the economy.
Juckes feels that the Euro would be moving higher on the back of this were it not for the mounting calls for retaliation in the face of overt or semi-overt currency devaluation elsewhere. He finishes by adding that "Our end year EURUSD forecast at 1.19 looks miles away as we trade comfortably in the 1.30s but the path for the Euro -supported as the crisis fades but needing to fall in due course to avoid an even longer and deeper period of economics weakness, still seems right."
One man who may find it easy to talk down his currency is David Cameron. The pound is already under pressure. Promising a referendum on EU membership can send it lower. Cameron will deliver his delayed speech on the UK's relationship with Europe this morning, and press comments suggest he is going to promise a referendum on EU membership in the next parliament, should the Conservatives be in power at that point. Juckes doesn't believe that Cameron wants the UK to leave the EU, but he does want to change the relationship with the Eurozone countries as they move towards closer ties in the wake of the financial crisis.
He continues to add that the risk, obviously, is that a promise of a referendum will see firstly, little enthusiasm from the UK's European partners to re-negotiate the terms of membership, and secondly, growing concern about what economic isolation could do for the UK. He adds, "A vote wont happen until 2017, if at all, but the pound can react much quicker than that and this is another potential drag. A weak economy, a triple-A credit rating in danger of downgrade, export volumes which are lower than they were in 2008, and a more central bank than the ECB, is not a recipe for a strong pound. Today's labour market data will need to avoid disappointing if we are to avoid another rapid spike higher in EURGBP to 0.85 and beyond."
The Spanish bond auction results highlight once again how much the market mood has improved. Strong demand (particularly strong foreign demand) and falling yields are positive, though Juckes feels that context is important. He adds, Spain's ability to issue debt at 5% is better than it was but that's still more than twice the yield the US pays and still an awful lot higher than the nominal growth rate of the economy.
Juckes feels that the Euro would be moving higher on the back of this were it not for the mounting calls for retaliation in the face of overt or semi-overt currency devaluation elsewhere. He finishes by adding that "Our end year EURUSD forecast at 1.19 looks miles away as we trade comfortably in the 1.30s but the path for the Euro -supported as the crisis fades but needing to fall in due course to avoid an even longer and deeper period of economics weakness, still seems right."
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