Forex rebates on every trade - win or lose!

When does the Forex market re-open next week?

Tomorrow night SC

Great, thanks Choccie. Must say I'd though of cable as a good short but......

Might try and get a piece of the action on Mon.

Just bringing this thread up (pardon me!) for Monday morning.

Log on to http://www.cantos.com for:

Deep rate cuts on the way in the UK
- Video interview with Alan Castle, UK Economist, Lehman Brothers - Weak data on the UK economy means that deep rate cuts will be introduced over the next few months, according to Alan Castle. He adds that the biggest black cloud on the horizon would be a halting in United States economic growth.

And there's this from earlier in the week:

http://www.moneyam.com/action/news/showArticle?id=867632

Anyone know of a site or facility to download historical eod rates? I want to import into excel for a few currencies to backtest strategies. I have a site where you can download the last two weeks data but then you need to separate it into the relative currencies, wheras I need a list of prices for each pair listed by date.

(Filed: 17/07/2005)

Signs that sterling has run out of steam

Throughout Labour's term of office the UK's external trade has been a notable weakness in an otherwise good performance.


The weakness has been partly due to the extraordinary strength of the pound but this very strength has also served to distract attention from the external accounts. After all, if foreigners want to hold pounds what is the problem? Meanwhile, because other parts of the economy were doing so well it didn't seem to matter that our overseas trade was doing badly. But all this is set to change.


Assessing the problem

In cash terms, the UK's current account deficit has recently been very large by historical standards. Last year's deficit of 23bn was only 3bn short of the all-time record deficit set in 1989, at the peak of the Lawson boom.

But, as our top chart shows, the picture looks less worrying when the deficit is compared to the size of the economy. Last year the deficit amounted to only 2 per cent of GDP.

But a closer look at the detail suggests that the UK's external position may not be as robust as it seems. There has been a deterioration in the trade balance, encom-passing both goods and services, where the deficit now exceeds 3 per cent of GDP. What has offset this deterioration has been the strength of our net investment income, which has a surplus of some 2 per cent of GDP in each of the past two years, four times larger than its average surplus since 1955 of just 0.5 per cent of GDP.

But can the UK's robust investment income surplus be sustained? There are several reasons to be cautious. For a start, the UK has a smaller stock of investments overseas than other countries have in the UK. Given this, it is extraordinary that UK investors have been able to achieve a greater return on that investment than overseas investors have managed on their bigger interests in the UK. It suggests that our investment expertise really is stellar. Or have we just been lucky? Either way, there is no guarantee that these conditions will last.

Second, as long as the UK is running a current account deficit, its net international investment position will get worse over time, making it harder for UK investors to continue to generate higher earnings than overseas companies achieve on their UK investments.

Third, one positive influence in the past year or two has been the strength of the UK oil companies. Should the oil price fall, their earnings would fall too.



Economic weakness

The period of a strong pound and weakening external trade has paradoxically been one of great success for the overall economy. There are no secrets about why this is. Until recently, the growth of consumer spending has been strong. Meanwhile, government spending has grown strongly too.

But under current fiscal plans, the growth rate of government spending is set to slow to 1.7 per cent by 2008/9, compared with 4.2 per cent last year. Meanwhile, consumer spending is already slowing sharply. Admittedly, corporate investment could pick up but it is so small in relation to consumer spending that this is unlikely to make up the difference.

The upshot is that overall growth is set to slow. Somehow I think that come November we will be denied our usual treat of listening to the chancellor castigating outside forecasters for mistakenly anticipating a slowdown while his own forecasts bask in the glow of unexpected vindication. In short, he will have to eat humble pie - or at least the Gordon Brown version of it.

Moreover, the slowdown is unlikely to be a flash in the pan. If economic growth continues at 2 per cent or below - and it could be well below that - then much else starts to go wrong as well. Tax receipts will not grow as planned so the fiscal numbers will be worse and unemployment will rise.

The way out of all this is for exports to grow more strongly. In view of the weakness of overseas demand this is not going to happen unless British exports are more competitive, and in the short run that requires a weaker pound. Essentially we will have to reverse much, if not all, of the rise in the pound since 1997, clearly shown in our lower chart. In these conditions, British producers would be able to win a higher share of markets, both at home and abroad.

This would be rather like the period immediately after we left the ERM in 1992, when our economy grew despite continued weak growth on the continent and in consumer spending.

The key is interest rate policy. The pound has already come down a bit but if I am right in thinking that August's rate cut will be the first of many then the pound could really get the skids under it. A fall of between 10 and 20 per cent is perfectly plausible.

Wouldn't a sharp fall in the pound initiated by lower interest rates inhibit the MPC from cutting rates further? It all depends on the context. Provided that this fall came against a background of weak aggregate demand - which is my hypothesis - any upward pressure on inflation would probably be limited.

In these conditions, I think that the Monetary Policy Committee would be able to tolerate a good deal of sterling weakness.


Against which currency?

How all this pans out against the dollar and the euro will depend upon what happens to the dollar/euro exchange rate, over which the UK has no influence. If I am right in expecting the euro to resume its rise against the US dollar, then most of the pound's decline will come against the euro.

My forecast is for the pound to fall from its current rate of around 69p against the euro (or 1.45 euros to the pound) to a rate of 82p (1.21), a fall of some 15 per cent. In these circumstances, the pound would hold reasonably steady against the US dollar.

But if the dollar remained stronger, then because the euro has a greater weight in our trade, the pound would need to fall against both the euro and the dollar to achieve the fall in the average exchange rate which I believe is warranted, with the dollar/pound rate perhaps dropping to something like $1.55 by the end of next year.

Either way, savour your overseas holiday while you can. Next year's may cost much more. But don't despair even about that. A much weaker pound is just what the economy needs. It would lay the foundations for greater prosperity in the years ahead.

Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. You can contact him at roger.bootle@capitaleconomics.com

Log on to http://www.cantos.com for:

US trade deficit not sustainable
- Audio interview with David Wyss, Chief Economist, Standard & Poor's
- The US economy is currently doing "a lot better" than expected says David Wyss. Manufacturing data has been strong and the picture on the US budget deficit is improving faster than anticipated. The situation in the Middle East, continuing trade deficit and high price of oil all remain concerns, he adds.

So is cable or a sell, MM?

:o)

Hil: You tease.

But . . . I reckon Cable is on a downtrend over the next few months. I'm rather hoping it will reach its nadir in December.

Short term, you know a great deal more than I do . . .

I think so too, MM - been trading only short since around 1.83.
I doubt it'll break 1.77 again in a while.

MM,

Economists and analysts make me die. Any idiot can turn round and say that it's falling after cable's just come off 1400 pips in a little over 2 months. But what were the same folk saying at the start of May when it was around $1.89? Fillyerboots 'cause we'll soon break $2.

I think that it's called "Being Wise After the Event".

What those guys are possibly overlooking is that at the current level of $1.75 there is a long term rising support line passing through the lows of March 2002 and September 2003. Will it hold? You can only trade what you see on whatever chart you happen to be trading at the time.

It does strike me though that once the World, his wife and their dog are all long the greenback then it can only go one way. Down.

And fundamentally? Surely it's a case of which economy is least shagged rather than which is the healthiest.

Whilst I agree that we might see an August cut in UK interest rates, my money's on 7% or 8% in the UK over the next couple of years. I think that consumer debt could be the key there and Joe Public isn't bleeding badly enough yet. He will do.

And what about US Crude at $60? Six weeks into the driving season and it's being overlooked. Another month and it should come to the fore.

And TIC yesterday? $60b covered the trade deficit and was in-line but I felt that they were expecting more. Is that any reason to be bullish? My feeling is that you've been witnessing an unwinding of the carry trade these last couple of months in anticipation of a BoE autumn cut. Ultimately though, we've still got 1.5% on the carry.

Food for thought?

L & K,

A Contrarian Hil.

:o)

Thanks Hilary

Agree with you re the contrarian bit - analysts are wonderfully wise after the event.

Could explain "carry trade" for me. I presume its's something to do with expectations of future interest rates.

Thanks

Seymour "Much to learn" Clearly ;-)

Seymour,

It's the process of borrowing money in a country which has low interest rates and investing it (typically into bonds) in a country with a high interest rate or yield. The yield is used to service the loan.

You experience something similar when you hold rolling positions overnight in that you are either paid or you pay interest on the position according to the interest rate differential between the two sides of the pair. Similarly, it is the reason why quarterly futures contracts are skewed so far off spot.

While US interest rates were only 1%, the cable carry trade was attractive and it is obviously not so at the moment.

Thanks Hilary, much appreciated.

The more I know the harder it is to understand !!!

Seymour,

No problem. It's why interest rate events and speculation move the market so much.

For instance, yesterday morning cable fell sharply onwards of 7am whilst the Euro held reasonably firm against the Dollar. The reason being that the Rightmove House Price thingey had been published on Sunday evening (see calendar above). It showed house prices had fallen quite dramatically which in turn heightened speculation that UK interest rates would fall sooner rather than later. Virtually every piece of economic news can be extrapolated into the likely effect on interest rates and, therefore, the effect on that particular currency.

And we still have the BOE minutes to follow tomorrow.

Indeed Choccy. Greenspan as well.

Two down, one up and six holds last month, but it was the last month for one of the members' who voted down (was it Marion Bell???). Market says 6-3 this month, but I'll be a little surprised if it is.

edit: Apparently it was 7-2 last month - I thought it was 6-2-1. Oh well.

Just wondering whether the minutes effect is in the price already after last time.