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Wednesday, 5 May 2010

Euro/Sterling Rates for Canary Property Purchase

The latest financial outlook from MoneyCorp on Euro / Sterling and Election fever: UK general election looms over sterling. Germany still playing hard-to-get on Greek bailout.

Although sterling had a slight downward bias it did not move far over the elongated week and was easily contained within a €1.1450 - €1.1650 range.

UK economic data played only the most minor role in sterling's fortunes. Of just a handful of figures only two did not relate to the residential property market. They were not very helpful. The CBI's distributive trades survey, a measure of retail sales, was steady at 13 and Gfk's consumer confidence index declined from -15 to -16. Mortgage approvals (the British Bankers' Association version) went up very slightly to 35k in March but fell well short of the 43k that analysts had predicted. The most positive result came with Nationwide's house price index. A +1.0% increase in April left prices 10.5% higher than a year ago.

Although the UK general election loomed ever larger over the currency, the prospect of a hung parliament did no particular damage. The most recent opinion polls put the Conservative party in the lead with the Liberal Democrats and Labour fighting for third place. If that were to be how the voting went and if it were to translate directly into parliamentary seats (neither can be assumed) a Conservative/Lib Dem coalition would be the most likely outcome. Investors fancy that between them Mr Cameron and Mr Clegg would be able to come up with a suitable plan to reduce the deficit. (The market's main problem is the three parties' steadfast refusal to explain which taxes will go up, where the spending cuts will come and how deep they will be.)

As with the pound, investors did not pay overmuch attention to the economic statistics from the euro zone. Not that there were many pan-Euroland data for them to examine. Brussels-sponsored confidence indices showed consumers (two points higher at -15) and industry (three better at -7) to be in a better mood. Economic confidence was three points stronger at 100.6. Inflation was virtually unchanged (provisionally) at +1.5% and unemployment was static at 10%. The best result came with Monday's purchasing managers' indices. The Euroland index rose by a point to 57.6, lagging behind Germany's better showing at 61.5.

For an nth week it was the Greek bailout that held investors' attention. There have been so many failed attempts at a rescue that it is almost pointless to review them yet again but the feeling of déjà vu is huge: The EU and - apparently - the rest of Euroland wants to dig Greece out of its debt hole in order to avoid destabilising the euro while Germany remains unconvinced that this is the only, let alone the best, way of going about it. As things stand, Germany says it will pay up only if Greece accepts its culpability and promises to mend its ways by subscribing to massive job losses and cuts to wages and pensions. Greece says it is doing its best but its citizens are not exactly lining up to be stripped of their financial security. Despite the protestations of success from Brussels there is not yet a done deal and there remains the real risk of contagion spreading to Portugal and Spain.

The early part of the week could well be a period of relative calm for sterling. Investors have made their best guess about the outcome of the election and what it will mean and must now sit on their hands to see what transpires. That enforced relaxation could well come to an end when the polls close and the results of the first exit polls hit the newswires on Thursday night. If ever there was a time for FX market users to join the ranks of the 'don't knows' this is it. If a weaker pound would totally scupper your investment plans the only safe course of action now is to cover the exposure completely. Otherwise, buyers of the euro should hedge 50% of their requirement and review the situation on Friday morning. Consider leaving an order on Thursday to provide protection in case there is a violent move as the results come out.

Source: Moneycorp

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