Us Dollar Shows Strong Rally (right Now)

[tinecu]

Looks like interest rate hikes taking effect...

Further rallies like this may force the hand of the MPC

[Realistbear]

Not just that--US employment numbers were exceptionally strong showing the economy is resilient enough to take a few more hikes!

At 6% the US will be a mile from Gordon's 4.5%.

1 U.K. £ =

1 1.8347

It is amazing that sterling, with no IR hikes in sight, is holding anywhere near 1.80. Its "value" is more like 1.60 IMO.

http://www.iii.co.uk/news/?type=afxnews&am...;action=article

LONDON (AFX) - The dollar drifted higher in late trade, helped by signs that US job creation picked up in June, thereby confirming that the economy remains on a firm footing.

The forecast from ADP Employer Services that US companies added some 368,000 jobs during the month has strengthened expectations for this Friday's crucial non-farm payrolls data.

The robust ADP data pushed up expectations for the non-farm payrolls figure to around 200,000 from 160,000. In May only 75,000 jobs were created. And, if the payroll number rises sharply, rate US hike expectations will also strengthen.

Edited July 5, 2006 by Realistbear

[Marina]

Not just that--US employment numbers were exceptionally strong showing the economy is resilient enough to take a few more hikes!

At 6% the US will be a mile from Gordon's 4.5%.

1 U.K. £ =

1 1.8347

It is amazing that sterling, with no IR hikes in sight, is holding anywhere near 1.80. Its "value" is more like 1.60 IMO.

Yes it is amazing - but it doesn't seem to make anyone stop and think about what is going on. All the rules have been broken here.

As you say, at 6% the US will be a mile from our 4.5% --- but, looking at how things are progressing at the moment, IF the yanks (big IF from what I read) moved to 6% the £ might go down to what 1.75? That's where it was a few months ago when our rates were still above the yanks.

Are you not beginning to think 'Hold on, there is something going on here I don't understand?'

[Justice]

The petrodollar is coming to an end even if it has a good day now and then the long term trend will continue down and the £pound will go down a bit with it.

GW-Bush now has 89% of people thinking he telling lies about the 9/11 and you can bet when it goes to court that the UDS$ will go into meltdown if Ford and GM don't crash it first.

Gold maybe but not USD$

£1.00=1.10 Eu anyone.

Edited July 5, 2006 by Justice

[the_duke_of_hazzard]

Are you not beginning to think 'Hold on, there is something going on here I don't understand?'

I've been thinking that for ages...

[KentishFella]

Are you not beginning to think 'Hold on, there is something going on here I don't understand?

Well, not really? Whatever else it maybe, it's not a collapse is it? If you don't believe this, then take a look at the chart?

HTH

KF

[Golden Shower]

The weakening GBP thread just won't die.

I wouldn't pay too much attention to a 1.4 cent drop, it's part and parcel of currency trading. GBP/USD has been very choppy for some time now.

[frugalista]

The weakening GBP thread just won't die.

I wouldn't pay too much attention to a 1.4 cent drop, it's part and parcel of currency trading. GBP/USD has been very choppy for some time now.

Exactly, the big news is that GBP / USD is *not* doing anything, despite US rates rising from 1% to 5.25% over a period of less than 3 years.

Traders must just really love the UK.

frugalista

[Realistbear]

Exactly, the big news is that GBP / USD is *not* doing anything, despite US rates rising from 1% to 5.25% over a period of less than 3 years.

Traders must just really love the UK.

frugalista

The traders have consistenly said that a bouyant property market in the UK will underpin the economy. They read Rightmove's "data" and trade the pound up. They listen to RICS claim that more people are "more optimistic" and up goes the pound. We are HPI-dependent and the world sees nothing but HPI ahead.

On the other hand, they read that the US deficit is growing and down goes the dollar. The problem is that as soon as the dollar gets anywhere near Euro 1.28 the Euro wobbles as they rely on exports to keep their fragile economy going. When the pound gets anywhere near 1.89 it drops sharply back to the 1.83-4 trading range. Thus, we have something that is stopping the dollar falling much further. That "something" is the fact that the US is the world's largest economy and the UK's 2nd largest trading partner and a falling dollar spells recession with a capital "R."

The economy is slowing in the UK as evidenced by weak GDP growth compared with the US and far worse employment stats with their numbers becoming healthier and ours going in the opposite direction. The US have admitted their HPI is turning into a HPC whereas no one dare admit it here lest a panic breaks out and a Black Tuesday or even Thursday follows.

Bottom line, I think its propaganda keeping the pound afloat. Gordon has taken over from Alan "Big Al" Greenspan as the financial wizard of the world who can do no wrong. When that mystique begins to break down then everything else will go with it.

Fed at 6% may do it and if the US continues to expand and add jobs at the current rate we should see 6% this side of Christmas.

[KentishFella]

Bottom line, I think its propaganda keeping the pound afloat. Gordon has taken over from Alan "Big Al" Greenspan as the financial wizard of the world who can do no wrong. When that mystique begins to break down then everything else will go with it.

This is all great fun, but perhaps there's a more straightforward and less tendentious explanation in the sense that it at least has the merit of fitting the facts. It goes under the rather dull heading of "The pound finally regains its strength". It's written by the Edmund Conway, Economics Editor of the Telegraph and you can read the article in full here: http://www.telegraph.co.uk/money/main.jhtm.../05/ixcoms.html

Overall, I think you'll agree that it's actually rather bullish in tone and for the future shape and strength of sterling?

HTH

KF

[FTBagain]

The traders have consistenly said that a bouyant property market in the UK will underpin the economy. They read Rightmove's "data" and trade the pound up. They listen to RICS claim that more people are "more optimistic" and up goes the pound. We are HPI-dependent and the world sees nothing but HPI ahead.

On the other hand, they read that the US deficit is growing and down goes the dollar. The problem is that as soon as the dollar gets anywhere near Euro 1.28 the Euro wobbles as they rely on exports to keep their fragile economy going. When the pound gets anywhere near 1.89 it drops sharply back to the 1.83-4 trading range. Thus, we have something that is stopping the dollar falling much further. That "something" is the fact that the US is the world's largest economy and the UK's 2nd largest trading partner and a falling dollar spells recession with a capital "R."

The economy is slowing in the UK as evidenced by weak GDP growth compared with the US and far worse employment stats with their numbers becoming healthier and ours going in the opposite direction. The US have admitted their HPI is turning into a HPC whereas no one dare admit it here lest a panic breaks out and a Black Tuesday or even Thursday follows.

Bottom line, I think its propaganda keeping the pound afloat. Gordon has taken over from Alan "Big Al" Greenspan as the financial wizard of the world who can do no wrong. When that mystique begins to break down then everything else will go with it.

Fed at 6% may do it and if the US continues to expand and add jobs at the current rate we should see 6% this side of Christmas.

I generally agree with your comments, but I think that it is OIL that is keeping the pound afloat. I have watched the market closely for a couple of years now, and every time oil goes up the pound follows strongly, at least in the short term. I think the markets see the UK as being better shielded against oil induced inflation, because of North Sea oil.

I know, North Sea oil is in decline, but the markets are right, we are still (and probably for sometime to come) better off that the US in this respect, hence everytime oil rallies so does the pound. However this has been disguised somewhat over the last year or so, because the pound has been in a general fall against the dollar, until recently.

By the way RealistBear, I admire your research zeal.

Edited July 5, 2006 by FTBagain

[tinecu]

The weakening GBP thread just won't die.

I wouldn't pay too much attention to a 1.4 cent drop, it's part and parcel of currency trading. GBP/USD has been very choppy for some time now.

Sure its not a significant drop on its own. I thought it notable in as much as this is the first time the exchange rate has moved in an expected direction since the last US hike.

IMO sterling is currently overvalued.

I really wonder what is supporting the pound...real economic growth or hype?

[FTBagain]

As a general point folks, if you look at the previous occasions that the dollar rates were above the stirling rates, the pound did not fall straight away. There was a lag, why I am not sure, but this time is not that different, so far.......

[frugalista]

Bottom line, I think its propaganda keeping the pound afloat. Gordon has taken over from Alan "Big Al" Greenspan as the financial wizard of the world who can do no wrong. When that mystique begins to break down then everything else will go with it.

I pretty much agree with you. If you watch or read US financial media they just love trashing the dollar in gory detail. On the rare occasions they mention the UK, it is usually bullish.

I wouldn't quite call it propaganda, rather just a kind of inertia. The UK has been the best performer in Europe for the last few years, so people just expect more of the same.

frugalista

[Realistbear]

Oil is pushing the records:

http://biz.yahoo.com/ap/060705/oil_prices.html?.v=16

P

Oil Prices Climb to Record

Above $75

Wednesday July 5, 3:50 pm ET

By Brad Foss, AP Business Writer

Oil Prices Jump to Record Above $75 a Barrel on Rally in Gasoline, Geopolitical Tensions

WASHINGTON (AP) -- Oil prices jumped to a record above $75 a barrel on Wednesday, propelled by a rally in gasoline that analysts said could send average U.S. pump prices past $3 a gallon by the weekend.

One of the reasons given by the analysts for Gordon holding the MPC back from a hike is "stability in fuel prices?"

Rising sterling must be the only thing keeping oil prices in check as the inflationary forces would otherwise kick in. Perhaps if oil were to break out in the $80 range?

[FTBagain]

Oil is pushing the records:

http://biz.yahoo.com/ap/060705/oil_prices.html?.v=16

P

Oil Prices Climb to Record

Above $75

Wednesday July 5, 3:50 pm ET

By Brad Foss, AP Business Writer

Oil Prices Jump to Record Above $75 a Barrel on Rally in Gasoline, Geopolitical Tensions

WASHINGTON (AP) -- Oil prices jumped to a record above $75 a barrel on Wednesday, propelled by a rally in gasoline that analysts said could send average U.S. pump prices past $3 a gallon by the weekend.

One of the reasons given by the analysts for Gordon holding the MPC back from a hike is "stability in fuel prices?"

Rising sterling must be the only thing keeping oil prices in check as the inflationary forces would otherwise kick in. Perhaps if oil were to break out in the $80 range?

I have noticed that petrol prices are on the way up at my local garages by aboiut 1 - 2p a litre. Probably too late to show in this months inflation data, but next month.....

Edited July 5, 2006 by FTBagain

[the end is a bit nigher]

I have noticed that petrol prices are on the way up at my local garages by aboiut 1 - 2p a litre. Probably too late to show in this months inflation data, but next month.....

if the NFP on friday comes in at less than 160k the $ is stuffed - nearly all the traders i know are all forecasting a return to 1.90

[Marina]

Sure its not a significant drop on its own. I thought it notable in as much as this is the first time the exchange rate has moved in an expected direction since the last US hike.

IMO sterling is currently overvalued.

I really wonder what is supporting the pound...real economic growth or hype?

And you started this post with:

"Looks like interest rate hikes taking effect...

Further rallies like this may force the hand of the MPC"

If the dollar rallies and goes up against the pound it gives the MPC the scope to DROP rates. Is that what you mean by 'further rallies like this may force the hand of the MPC'?

When the pound moved down to the low 1.70s a while ago everyone was saying 'Aha! a rate rise inevitable'

Why, despite the fact US rates have gone up at least twice since then, aren't people now saying 'Aha, A rate cut is inevitable'

[the end is a bit nigher]

Sure its not a significant drop on its own. I thought it notable in as much as this is the first time the exchange rate has moved in an expected direction since the last US hike.

who expected it to?

[Marina]

This is all great fun, but perhaps there's a more straightforward and less tendentious explanation in the sense that it at least has the merit of fitting the facts. It goes under the rather dull heading of "The pound finally regains its strength". It's written by the Edmund Conway, Economics Editor of the Telegraph and you can read the article in full here: http://www.telegraph.co.uk/money/main.jhtm.../05/ixcoms.html

Overall, I think you'll agree that it's actually rather bullish in tone and for the future shape and strength of sterling?

HTH

KF

And, therefore, those on here hanging their hat on interest rate rises causing a house price crash had better prepare to pick their hats up off the floor and eat them.

Weird and contradictory as it may seem (as it is going against the 'normal' behaviour of the last 35 years or so) it looks as though we may have rates below the US for an extended period because, if sterling keeps its value, we won't get the imported inflation that a fall in sterling would normally bring so, we don't need to raise interest rates.

We might even be able to drop them.

Don't misunderstand me. I am not happy about this. But it looks to me that, to coin a phrase, things are 'different this time' and to dismiss what is currently happening and to keep insisting the old paradigm is in place seems, to me, to be a bit daft.

[tinecu]

And you started this post with:

"Looks like interest rate hikes taking effect...

Further rallies like this may force the hand of the MPC"

If the dollar rallies and goes up against the pound it gives the MPC the scope to DROP rates. Is that what you mean by 'further rallies like this may force the hand of the MPC'?

When the pound moved down to the low 1.70s a while ago everyone was saying 'Aha! a rate rise inevitable'

Why, despite the fact US rates have gone up at least twice since then, aren't people now saying 'Aha, A rate cut is inevitable'

Sorry you've got me totally baffled with you reverse logic. What are you saying?

[KentishFella]

And, therefore, those on here hanging their hat on interest rate rises causing a house price crash had better prepare to pick their hats up off the floor and eat them.

Weird and contradictory as it may seem (as it is going against the 'normal' behaviour of the last 35 years or so) it looks as though we may have rates below the US for an extended period because, if sterling keeps its value, we won't get the imported inflation that a fall in sterling would normally bring so, we don't need to raise interest rates.

We might even be able to drop them.

Don't misunderstand me. I am not happy about this. But it looks to me that, to coin a phrase, things are 'different this time' and to dismiss what is currently happening and to keep insisting the old paradigm is in place seems, to me, to be a bit daft.

Hi Marina,

And so, as you say, "We might even be able to drop them."

Anatole Kaletsky (again) suggests a couple of why this may turn out to be the case: http://business.timesonline.co.uk/article/...2221438,00.html

It's probably best to be flexible in your approach to these matters in the circumstances.

HTH

KF

[Realistbear]

http://uk.biz.yahoo.com/06072006/94/dollar...-data-eyed.html

Consensus forecasts are now believed to be around 225,000, while the futures market has moved to price in a 78 per cent probability that the Federal Reserve will be so convinced of the ongoing strength of the US economy that it will raise rates to 5.5 per cent in August.

Market is expecting some strong US job numbers. With the Euro standing still at 2.75 the gulf between the EZ and the Fed is huge. The markets must be anticipating some healthy numbers coming out of Europe to justify current exchange rates. What is puzzling is that the EZ has a fragile recovery which is probably why they dare not raise rates again. The US can raise to 6% without much effect on their economy except HPC which is happening regardless of what the Fed do.

6% looks likely IMO.

[the end is a bit nigher]

i expect the strength of the economy to push IRs up as it has in the US - people don't need to lose their jobs or anything dramatic for this to happen - in fact, in the US, the number of new jobs being created and people being paid more is helping to push IRs up

whih brings us to the UK - whilst the consumer side of the economy is dropping off, the rest is gradually picking up - the consumer has done his / her bit and now can f--k off for a while (remember the saying 'consumer led recovery'), and IRs can start to rise

finally, the pound is up because the markets are anticipating higher IRs - the pound doesn't rise and therefore the BoE can do exactly the opposite of the reason the market has pushed the pound higher

best ways to learn about currency markets is to listen to Bloomberg all day, every day, or alternatively, join one of the fx forums

[Guest wrongmove]

Betfair odds for the next Fed decision are hold, 11/10; +0.25, 8/15

Next MPC decision, hold, 1/18; +0.25, 7/11

ECB hold, 3/1; +0.25, 1/12

The Betfair odds are usually very good predictors, but these markets haven't been open for long. So Fed is probably up, MPC is almost deinitely hold, and ECB is almost definitely up.