Sterling Is Still Not A 'Buy' Yet. By Nicholas Hastings
The pound may prove to be a "buy" once the U.K. general election is over but there is little sign of that just yet.
If anything, the U.K. currency still looks a "sell" on any bounce.
For the moment, sterling optimists appear to have a lot to feed on.
House prices are rebounding, growth estimates are proving higher than expected and some members of the Bank of England's monetary policy committee are even sounding hawkish about inflation.
However, any bright spots on the U.K. economic horizon are unlikely to last long as growth continues to show little serious upward momentum.
Also, fears that the election will end in a hung parliament continue to cast a long shadow over sterling markets--ensuring that any attempts to establish the pound above $1.50 prove futile.
Over the last few days, the pound has certainly been looking perky.
See the pound's bounce against the dollar:
Click Image to Enlarge
New data, such as Nationwide's latest house price survey that showed a 0.7% rise this month, have helped. But these positive figures could prove misleading.
Analysts reckon that any rebound in house prices may have more to do with the low level of new houses being put on the market and that a recent decline in mortgage approvals suggests the bounce is a "false dawn."
On the surface, an upward revision to last year's fourth-quarter growth to 0.4% from 0.3% should also contribute to optimism over the U.K. recovery, especially given comments from Bank of England chief economist Spencer Dale that inflation hasn't fallen back as far as might have been expected.
However, any suggestion that the U.K. can start contemplating a hike in interest rates is unlikely to last long given the continued weakness of the U.K. consumer.
Pointing to the recent decline in the consumer savings ratio, Mark Cliffe, global head of financial markets research at ING Financial Markets in London, said this is a sign of things to come as the U.K. consumer is forced to tighten his belt.
With savings already at low levels and with banks less willing to lend and consumers less willing to borrow in this downturn, chances are that households will have to cut spending.
This economic gloom will only add to the political uncertainty created by the continued narrow lead that the Conservative Party has over the country's Labour government.
Despite last week's budget statement, which was widely criticized for its lack of commitment to reducing the country's budget deficit, the Conservatives have only been able to extend their lead over Labour to 7 percentage points. That lead in an election would leave the Conservatives still short of an overall majority in the House of Commons and the country would face a minority government.
Any chance of a swift solution to the U.K.'s budget deficit problem would be compromised and the risks of the country's sovereign debt being downgraded from triple-A plus would rise, ensuring that sterling becomes an even less attractive proposition.
Early Wednesday in Europe, the pound got a little help from a Gfk report showing that U.K. consumer confidence slipped only slightly to -15 in March from -14 in February.
By 0745, the pound was up at $1.5077 from $1.5064 late Tuesday in New York, according to EBS.
General market sentiment had improved a little after the gloom that set in Tuesday when Greece found that is latest attempts at raising funds in the bond market were hardly a roaring success.
News from Australia that retail sales fell 1.4% and from Japan that housing starts tumbled added to the negative mood that initially helped to lift the dollar and drive the euro even lower.
However, sentiment showed signs of improving again as investors look ahead to the release of the latest ADP survey of private employment in the U.S. later in the day, which should show a 50,000 rise this month after a 20,000 fall in February. This is likely to lift forecasts for strong non-farm payrolls data Friday, especially after the latest U.S. consumer confidence figures Tuesday showed a larger-than-expected rise.
As investors repositioned themselves, the dollar rose to Y93.21 from Y92.49 while the euro bounded back to $1.3423 from a low of $1.3384. However, it was still down from late New York Tuesday at $1.3475. The single currency was up at Y125.06 from Y124.65.
If anything, the U.K. currency still looks a "sell" on any bounce.
For the moment, sterling optimists appear to have a lot to feed on.
House prices are rebounding, growth estimates are proving higher than expected and some members of the Bank of England's monetary policy committee are even sounding hawkish about inflation.
However, any bright spots on the U.K. economic horizon are unlikely to last long as growth continues to show little serious upward momentum.
Also, fears that the election will end in a hung parliament continue to cast a long shadow over sterling markets--ensuring that any attempts to establish the pound above $1.50 prove futile.
Over the last few days, the pound has certainly been looking perky.
See the pound's bounce against the dollar:
Click Image to Enlarge
New data, such as Nationwide's latest house price survey that showed a 0.7% rise this month, have helped. But these positive figures could prove misleading.
Analysts reckon that any rebound in house prices may have more to do with the low level of new houses being put on the market and that a recent decline in mortgage approvals suggests the bounce is a "false dawn."
On the surface, an upward revision to last year's fourth-quarter growth to 0.4% from 0.3% should also contribute to optimism over the U.K. recovery, especially given comments from Bank of England chief economist Spencer Dale that inflation hasn't fallen back as far as might have been expected.
However, any suggestion that the U.K. can start contemplating a hike in interest rates is unlikely to last long given the continued weakness of the U.K. consumer.
Pointing to the recent decline in the consumer savings ratio, Mark Cliffe, global head of financial markets research at ING Financial Markets in London, said this is a sign of things to come as the U.K. consumer is forced to tighten his belt.
With savings already at low levels and with banks less willing to lend and consumers less willing to borrow in this downturn, chances are that households will have to cut spending.
This economic gloom will only add to the political uncertainty created by the continued narrow lead that the Conservative Party has over the country's Labour government.
Despite last week's budget statement, which was widely criticized for its lack of commitment to reducing the country's budget deficit, the Conservatives have only been able to extend their lead over Labour to 7 percentage points. That lead in an election would leave the Conservatives still short of an overall majority in the House of Commons and the country would face a minority government.
Any chance of a swift solution to the U.K.'s budget deficit problem would be compromised and the risks of the country's sovereign debt being downgraded from triple-A plus would rise, ensuring that sterling becomes an even less attractive proposition.
Early Wednesday in Europe, the pound got a little help from a Gfk report showing that U.K. consumer confidence slipped only slightly to -15 in March from -14 in February.
By 0745, the pound was up at $1.5077 from $1.5064 late Tuesday in New York, according to EBS.
General market sentiment had improved a little after the gloom that set in Tuesday when Greece found that is latest attempts at raising funds in the bond market were hardly a roaring success.
News from Australia that retail sales fell 1.4% and from Japan that housing starts tumbled added to the negative mood that initially helped to lift the dollar and drive the euro even lower.
However, sentiment showed signs of improving again as investors look ahead to the release of the latest ADP survey of private employment in the U.S. later in the day, which should show a 50,000 rise this month after a 20,000 fall in February. This is likely to lift forecasts for strong non-farm payrolls data Friday, especially after the latest U.S. consumer confidence figures Tuesday showed a larger-than-expected rise.
As investors repositioned themselves, the dollar rose to Y93.21 from Y92.49 while the euro bounded back to $1.3423 from a low of $1.3384. However, it was still down from late New York Tuesday at $1.3475. The single currency was up at Y125.06 from Y124.65.
- 31 March |
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