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Name: Peter Rosenstreich
Position: Chief Market Analyst
Company: Advanced Currency Markets
Date: 21/05/08
Time: 09:47 BST
Channel: Bloomberg UK
Duration: 7 mins 6 secs
Interview with Peter Rosenstreich
Naga Munchetty
The minutes of the Bank of England’s last policy meeting show that the rate set is voted by 8 to 1, that majority to leave interest rates unchanged at 5%. Now, could the Bank of England monetary policy meetings one day be a thing of the past? Well, once a Euro sceptic, Goldman Sachs’s Chief Economist, Jim O’Neill, says it’s not entirely nuts to expect the UK to accept the single currency in the future. O’Neill thinks that the benefits of the UK being out of the Euro are vanishing, especially now the Pound has fallen to a more competitive level for manufacturers. Time now for some analysis. ACM: Advanced Currency Markets’ Peter Rosenstreich joins me now. Peter, what do you make of that? What kind of view do you take when you’re looking at the UK saying perhaps now is the time to at least consider being involved in the single currency?
Peter Rosenstreich
Right; I think, you know, it’s relatively short-term, those type of comments. I think the stress that the Pound has been under recently is making more politically charged statements more acceptable. I think the rationale for the UK to stay out of the Euro is still formally entrenched. That idea that the ECB is probably a better manager of monetary policy than the BOE, again, I think is very short-sighted; you need to take a much broader perspective. While there are plenty of buzz-type of comments out there, I would take it with a grain of salt.
Naga Munchetty
Okay. We’ve had the MPC minutes today: 8 to 1. Did they surprise you? How are they affecting your view when it comes to Sterling now?
Peter Rosenstreich
Very much. I was surprised not only with Blanchflower’s vote to cut rates but also his comments about inflation and the fact that there’s little chance of inflation staying well above that – over the 2% upper range, and 3% and even 4% as the inflationary report came out and said. What we’re seeing on a global trend with regards to inflation is that, despite the fact that growth is declining in many of these places, inflation is still very much resilient. It should be taken in account that just because growth is coming down, inflation has not followed in suit. The numbers that came out in the inflationary report look awfully spooky, and I believe that’s what the other eight members have recognized. Perhaps the idea of justifying or writing letters to the Chancellor and justifying why inflation’s 1% above the 2% upper limit perhaps spooked or scared many of the members. Still, I think a very important fact: that just because growth is declining doesn’t mean inflation’s going to be pushed down necessarily, because that’s not what we’ve seen globally.
Naga Munchetty
With the concerns of growth declining despite the inflationary outlook, what are you now targeting when it comes to Sterling, then? Are you favouring Sterling or, like the majority, are you shying away from it?
Peter Rosenstreich
We’re actually pretty much stuck in the 194 to 197 range, because the fact that just because they’re going to hold rates, as we discussed earlier, the increasing probability that the BOE eventually starts easing down to, say, 4% whether it happens in 2008 or 2009, increases the fact that the cable will come under pressure when they do move into the easing cycle. Just because they hold this meeting or next just increases the probability that eventually they have to go down, and that’ll put pressure on the cable.
Naga Munchetty
What about Euro/Sterling, just briefly, Peter?
Peter Rosenstreich
You know, I think Euro, given the conditions that we’re probably going to discuss in a couple seconds, we are somewhat bullish on the Euro cable. We think the Eurozone is actually holding up relatively well. We believe the ECB’s hawkishness will keep the Euro supported and it will play against the conditions that we just talked about in terms of the UK and the Pound.
Naga Munchetty
Peter, we’ve got plenty more to talk about. We’ll be with you after the break. Peter Rosenstreich there from ACM: Advanced Currency Markets. Coming up, we’ll go through Peter’s top currency picks and ask him why he’s still bullish on the Dollar and emerging market currencies. Plenty more with Peter Rosenstreich coming up after the break. He’s bullish on the dollar; we’ll find out why after.
(break)
Naga Munchetty
Welcome back to Bloomberg Television. Now: who’d buy the Dollar? Not investors like Mark Mobius or Warren Buffett it seems, but even as the Dollar flirts with new lows against the Euro, there are still some who believe there’s a good chance for an upside to the US currency. One such person is my guest, Peter Rosenstreich in Geneva, Chief Market Analyst at Advanced Currency Markets. Peter, your targeting 150 over the next few months.
Peter Rosenstreich
Correct.
Naga Munchetty
Tell me why.
Peter Rosenstreich
Well, first of all, I put a little foot into it on that. You know, we’re seeing a near-term upwards move in the Euro/Dollar with Dollar pulling back a little bit from that target. That’s partly with the economic data IFO from Germany as well as the higher GDP Q1 number that came out. We think we’re going to see an up-side bounce in, specifically, the Euro/Dollar in the near-term. However, we think the conditions exist for the dollar to start appreciating down to the 150 levels.
Naga Munchetty
When will it get there?
Peter Rosenstreich
Well, you know, we’re thinking about late Q2, early Q3 we should start seeing that at 150 levels, the market – excuse me - the Fed stabilizing rates, the economic data being somewhat supportive, the US actually not slipping into a full-fledged recession with two consecutive quarters of negative GDP growth; we believe we’re going to see one. Then, the second Q3 will be slightly above the negative territory. All of that will start weighing – will add Dollar fuel and move it higher across the board.
Naga Munchetty
Peter, I want to get in your favourite trade. You’re saying emerging markets Asia looks interesting. Tell me why.
Peter Rosenstreich
Absolutely. I think the story of inflation which we talked about earlier in the UK is going to be a powerful motivator to weigh the emerging market Asia trades. Inflation’s very, very elevated. We’re not seeing the decline in growth that we were expecting. We’re seeing softening at a very moderate pace. We believe central banks will continue to use either flexibility in the exchange rate or monetary policy to offset the effects of inflation, primarily driven by soft commodity prices. That will be supportive, one way or the other, of currency prices.
Naga Munchetty
Peter, really good to speak with you. I wish we had more time, but that’s it for this edition of Economic Essentials.
Peter Rosenstreich
Thank you very much.
Naga Munchetty
That was Peter Rosenstreich in Geneva, Chief Market Analyst at Advanced Currency Markets, a dollar bull. Rare to speak to one of those these days.
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