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Name: Peter Rosenstreich
Position: Chief Market Analyst
Company: Advanced Currency Markets
Date: 14/01/08
Time: 09:40 GMT
Channel: Bloomberg UK
Duration: 7 mins
Interview with Peter Rosenstreich
Naga Munchetty
Could a strong Euro mean bad news for Europe? Joining me now is ACM - Advanced Currency Markets’s Chief Market Analyst, Peter Rosenstreich. Peter, good morning.
Peter Rosenstreich
Good morning.
Naga Munchetty
What do you think, then? Do you think this is more complaints from the European Union about the rise of the Euro, o you think these are justified?
Peter Rosenstreich
I think so. I think it’s sort of a version of déjà vu all over again. I remember hearing this in November as well, the strong political rhetoric. I don’t think in terms of moving this into FX market is really going to have too much of effect on the recent Euro strain.
Naga Munchetty
Okay. I know you’re predicting a Euro weakness, or more likely a dollar recovery for the end of this year, seeing the Euro/dollar going down to 1.36.
Peter Rosenstreich
Correct.
Naga Munchetty
Do we touch new records before we get there?
Peter Rosenstreich
I think so. I think that’s the point of my forecast. We’re going to continue to see Euro/dollar strength. We’re probably going to re-touch the 1.50 levels. It looks like all the fundamentals are lining up, especially the weak dollar sentiment that we’re
seeing across the board combined with Bernanke sort of gloomish outlook on the US economy. That will help the Euro/dollar climb up to those levels. After that, and after the Fed continues to continue on some aggressive ease in cycle, we’ll start seeing a little switch in the Euro/dollar and it’ll start to come down throughout the rest of the year.
Naga Munchetty
So you think Ben Bernanke’s aggressive rate cutting strategy is going to let the US stave a recession?
Peter Rosenstreich
I think so. I think it’s hard to think that, between the aggressive cutting that’s already taken place, the fact that we are in an election year, meaning that there’s going to be plenty of the fiscal stimulus putting out there, as well as the fact that some of the fundamentals are relatively holding up in, specifically, retail sales as well as the labour figures, I think that will, overall, stave away a recession in the US.
Naga Munchetty
What’s the data you’re keeping your eye on the most this week? We’ve got plenty coming through: Beige Book tick data, retail sales, inflation.
Peter Rosenstreich
I think that the two big ones are going to be, obviously, retail sales and CPI. I think that’s really going to put an interesting spin on exactly what the Fed is going to do on the 30th. Right now, the market is pricing in a 50 basis point hike. However, if these numbers come out relatively strong on both sides, the market is going to have to pare down that expectation. That should yield to, perhaps, a slight Euro/dollar slide.
Naga Munchetty
What does this mean when you look at – if you’re looking at a Euro/dollar slide? I’m thinking now about sterling against the Euro as well. We’ve seen another record today. Where do you see the Euro going here?
Peter Rosenstreich
I think in terms of the Euro/pound, I think we’re going to continue move upwards. We’re looking, for a lack of a better story, at interest rate differentials and the fact that the UK, the BOE needs to start aggressively cutting rates. It looks like the ECB is on a hold right now, and perhaps maybe even go one up - however, that is not our official forecast – will mean that the Euro/pound will continue to move upwards.
Naga Munchetty
Can the ECB really afford to not cut interest rates this year, bearing in mind what’s going on in the global economy?
Peter Rosenstreich
I don’t think so. I think the fact that Trichet has been holding rates as long as he has shows stubbornness and, perhaps, at the end, a result perhaps not beneficial for the overall Eurozone economy. However, with these inflation numbers, they have to be careful.
Naga Munchetty
What happens with the pound if the Bank of England doesn’t embark on this rate cutting strategy, an aggressive rate cutting strategy?
Peter Rosenstreich
Obviously the pound will regain some of its strength; however, I do see that as a very slim probability. Everything that I’ve seen come out of the UK economy means that the BOE needs to aggressively start addressing the fact there’s significant weakness in their economy.
Naga Munchetty
Okay. Peter, do stay with me. Coming up after the break, Peter Rosenstreich’s going to stay. We’re going to be asking if higher volatility in the currency markets has had an impact on so called carry trade. We’re going to be putting that question to my guest. Traders are also predicting a Fed rate cut at the end of the month. We’re going to be looking at how that’s affecting the dollar against the Euro. We’ve seen it creep up to 1.4888 this morning so far. Do stay with us. You’re watching Economic Essentials on Bloomberg Television.
(break)
Naga Munchetty
Welcome back. You’re watching Bloomberg Television. The dollar’s falling against the yen. It appears that carry trades are once again out of favour. Signs that credit market losses will continue to grow have put the dollar on the back foot. Let’s talk once again with ACM, Advance Currency Markets, Chief Market Analyst, Peter Rosenstreich. Peter, what are you making of the carry trade? Have been a fan, no longer a fan?
Peter Rosenstreich
Well, I have been a fan and no longer right now. Am I a big fan? I think the conditions right now look dismal for carry trades on the long side in the near term. If you look at declining interest rate differentials, you look at volatility in the market or the rising volatility combined with the overall global risk avoidance, it means the carry trades are really out of favour right now.
Naga Munchetty
You know, it’s not just the yen that we talk about when we mention the carry trade; it’s the Swiss Frank as well, but we’re seeing the SNB largely, perhaps, on hold this year with interest rates? How is that going to make –
Peter Rosenstreich
Well, I think it will be supportive for the Swiss Frank trade across the board, less to do with the fundamentals than more the global outlook on risk and the unwinding of these carry trades. It should be relatively supportive for the Swissie.
Naga Munchetty
What about the Australian dollar? That was always one that did get an advantage from the carry trade.
Peter Rosenstreich
Yes, I think if we can sort of carve out a currency in this group that will continue to outperform, I think the Aussie is exactly that. Growth still looks very strong, and it’s somewhat isolated from the credit turmoil globally. Last night, the ANZ job report rose to records high. This is along a long string of strong data that’s coming out of the Aussie, and I think that the RNB will continue to keep a tightening hold on expectations and now support the Aussie.
Naga Munchetty
The Canadian dollar was one that many – I know particularly Credit Suisse - were a great fan of last year. What are you making of it this year?
Peter Rosenstreich
You know, right now, especially after the change of unemployment drop through -18,700, mostly because of losses in the manufacturing sector, it starts really adding concern that perhaps spill-over from the US is now affecting Canada. This highlights exposure to the US economy. That hit the market on Friday very, very hard and increases the probability that the BOC, the Bank of Canada, needs to start cutting rates aggressively, and now weaken the CAD in the mid-term.
Naga Munchetty
Peter, good to speak with you this morning. Peter Rosenstreich there, Chief Market Analyst at Advance Currency Markets. |