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Euro-Pound Parity Call Reverberates as Morgan Stanley Joins HSBC

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  • Euro-Pound Parity Call Reverberates as Morgan Stanley Joins HSBC

What once seemed a highly unlikely call on euro-sterling is gaining momentum, with two of the world’s leading banks predicting that Europe’s shared currency will attain and even go beyond parity with the pound for the first time.

Morgan Stanley sees the pair at 1.02 by the end of March, which represents a 12 percent gain for the euro from current levels, while HSBC Holdings Plc is sticking to its forecast that the euro will trade one-for-one against the pound by year-end. Standard Bank strategist Steve Barrow said “it’s not a huge leap of faith to suggest we could get up to the parity area.” It would be “foolhardy” to rule out the prospect of the euro reaching the one-pound mark, according to Rabobank International’s senior currency analyst Jane Foley.

The euro has surged more than 6 percent against the pound this year amid speculation that the European Central Bank will announce a tapering of bond purchases by autumn. By contrast, the pound is being held down by uncertainty surrounding Brexit negotiations.

“In euro-sterling we’ve had a very strong conviction and it’s one of the biggest forecasts I ever remember making on a major currency,” David Bloom, HSBC’s London-based global head of currency strategy said in an interview last week. That’s “a 20 percent move and that’s quite something. It’s very unusual that we make such, what was at that time, an outrageous forecast” but “we are roughly half way there and we believe in it,” he said.

Bloom first made his parity call a year ago, when the euro was around 83 pence. HSBC predicts the euro and the pound ending this year at $1.20, which are both “strong views,” he said.

Euro-sterling was at 0.9084 as of 3:07 p.m. in London, having reached 0.9119 on Aug. 11, its strongest level since October. The pair reached a record 0.9803 in December 2008.

Diverging Politics

Since France elected pro-European leader Emmanuel Macron in May, risks of the currency bloc fragmenting have diminished. In addition, euro-region economic data are showing signs of improvement. In contrast, Brexit negotiations are far from clear and that’s weighing on the pound. That’s the main concern for Standard Bank’s Barrow.

It all “depends a lot of how the Brexit negotiations go,” he said. “On euro-sterling previously we thought the 90-92 area might be the peak, but obviously now I no longer do.”

While Morgan Stanley’s parity call is partly due to a bullish-euro outlook, the U.K. currency is “likely to weaken in its own right, driven by weak economic performance, low real yields and increasing political risks,” Hans Redeker, head of foreign-exchange strategy, wrote in a client note dated Aug. 10.

Minority View

Still, the number of analysts calling for parity in the pair is relatively small. Of the 62 participants in a Bloomberg currency survey, only HSBC and Morgan Stanley see the pair at or above 1.00 by mid-2018.

For ING Groep NV’s Viraj Patel, the recent move higher in the euro versus the pound is more of an “overshoot, rather than a broader trend toward parity.”

There are risks that “over-exuberant EUR markets are front-running ECB QE tapering, as well as fading cliff-edge Brexit risks, limit the scope to which EUR/GBP can move materially beyond 0.90,” he wrote in a client note last week. “Domestic and geopolitical uncertainties may see us trade in the 0.9000-0.9150 range in the near term, with greater risks of a downside breakout.”

Sterling is “a different animal to most currencies,” as politics overshadows and complicates predicting it, according to HSBC’s Bloom. But when it comes to parity, “we are not a million miles away, so I am still in it.”

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Naira

Naira Appreciates to N1,666 Per Dollar at FX Market, N1,704.11 at Parallel Market

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Naira Exchange Rates - Investors King

The Naira appreciated by 0.5 percent against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday following an N8.77 rise to close at N1,666.72/$1 compared with Thursday’s closing rate of N1,675.49/$1 despite worsening supply in the market.

The daily supply of FX as measured by secondary data from FMDQ Securities Exchange Limited indicated that turnover fell by $72.41 million or 43.5 per cent to $94.20 million from $166.61 million.

However, the local currency slid on the Pound Sterling and the Euro in the final session. For the British currency, the local currency depreciated by N10.10 and closed at N2,157.25/£1 from N2,147.15/£1 while it closed at the rate of N1,814.79/€1, a slump of N23.43 against N1,791.36/€1 against the Euro.

Meanwhile, the Naira rose further by N7.66 against the American in the parallel market segment to close at N1,704.11 to the US Dollar compared to N1,711.77/$1 it closed on Thursday.

Also, the domestic currency extended its gain against the British currency during the final session as the Naira made a further appreciation of N16 to trade at N2,207.76/£1 from N2,223.76/£1 that it sold at the previous session and against the Euro, it appreciated N14.82 to close at N1,852.25/€1 versus the previous day’s rate of N1,867.07/€1.

The local currency gained a marginal N1.62 to close at N1,233.99 per Canadian Dollar, compared to Thursday’s N1,235.61 per CAD.

The Central Bank of Nigeria (CBN) at the recently concluded World Bank/IMF meetings held in Washington, DC last week said the foreign exchange market will not depend on the apex bank’s intervention for supply and stability.

This is evidenced by the stop of sales of Dollars to the market as it plans to improve supply organically without its intervention from time to time while maintaining balance in the market.

“While you might see us intervene from time to time, we are trying to ensure the market is not dependent on the intervention of the central bank.

“I think that we are looking at conditions that market return as much as possible to improve supply organically without the Central Bank having to put in money all the time,” the CBN deputy governor on economic policy, Mr Mohammed Abdullahi, disclosed.

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Naira

Naira Loses 2.7% on Dollar at NAFEX, Gains N6 to N1,711/$1 at Parallel Market

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New Naira Notes

The Naira fell by 2.7 percent on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEX) to exchange at N1,675.49/$1 on Thursday, October 311 as the local currency depreciated despite a slight increase in supply.

In the official market, the domestic currency lost N44.32 on the American currency in the official market versus N1,631.17/$1, which it closed in the previous session on Wednesday.

In a turn of fortune, the Naira rose N6.66 against the greenback in the parallel market segment to close at N1,711.77 to the US Dollar compared to N1,718.43/$1 it closed on Wednesday.

Data showed a rise in supply as the turnover published on the FMDQ Group website stood at $166.61 million indicating that the session’s turnover jumped by 29.2 per cent, indicating a rise of $37.63 million compared to $128.98 million that was published in the last trading session.

Equally, the Naira weakened its value against the Pound Sterling in the official market by N3.75 to sell at N2,147.15/£1 compared with the preceding session’s N2,143.40/£1.

It followed the same path against the Euro, depreciating N9.29 to quote at N1,791.36/€1 versus midweek’s closing rate of N1,782.07/€1.

In a different outcome in the black market, the domestic currency headed up against the British currency during the Thursday session as the Naira made an appreciation of N10.86 to wrap the session at N2,223.76/£1 from N2,234.62/£1 that it sold at the previous session.

However, the Naira followed a different pattern against the Euro as it depreciated N12.51 to close at N1,867.07/€1 versus the previous day’s rate of N1,854.56/€1.

The local currency gained a marginal 9 Kobo to close at N1,235.61 per Canadian Dollar, compared to Wednesday’s N1,235.70 per CAD.

Investors King reports that the Nigerian macro environment is placing pressure on the FX market with latest data showing that there is a high money supply in the system complemented by a wider government budget deficit.

The Central Bank of Nigeria (CBN) revealed that Nigeria’s money supply often known as M3 grew 62.8 percent in the last one year to N109 trillion from N66.9 trillion in September 2023.

 

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Naira

Naira Declines Amid Dwindling FX Supply as Official Rate Nears N1,631 per Dollar

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Naira Exchange Rates - Investors King

The Naira depreciated against the US Dollar at both the official and parallel foreign exchange market segments on Wednesday, October 30.

The Naira dropped 0.04 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) The local currency lost 72 Kobo to close at N1,631.17/$1 at the official window.

According to data obtained from FMDQ Securities Exchange compared to N1,630.45/$1 published in the preceding session on Tuesday.

This happened as supply decreased at the FX market as secondary data showed that $128.98 million worth of turnover was recorded compared to the preceding session which $242.59 million was settled. This indicated a $113.61 million or 46.9 per cent slump.

In the black market, the Naira lost N4.08 against the greenback to close at N1,718.43 to the US Dollar compared to N1,714.35/$1 it closed on Thursday.

Meanwhile, the local currency appreciated against the Pound Sterling and the Euro in the midweek session for the week. For the British currency, the local currency appreciated by N18.57 and closed at N2,143.40/£1 from N2,161.97/£1 while it closed at the rate of N1,782.07/€1, a jump of N18.90 against N1,800.97/€1 against the Euro.

In a different outcome in the black market, the domestic currency headed south against the British currency during the midweek session as the Naira made a depreciation of N9.38 to wrap the session at N2,234.62/£1 from N2,225.24/£1 that it sold at the previous session

However, the Naira followed a different pattern against the Euro as it appreciated N15.38 to quote at N1,854.56/€1 versus the previous day’s rate of N1,856.79/€1.

The local currency dropped N2.31 to close at N1,235.70 per Canadian Dollar, compared to Tuesday’s N1,233.56 per CAD.

The supply challenge in the FX market comes as the Central Bank of Nigeria (CBN) continues to filter sales into the market alongside recommendations from the World Bank.

The US-headquartered bank in its latest report noted that permitting market participants to trade FX with more flexibility across time would also contribute to deepening the FX market, adding that the CBN should continue efforts towards deepening the official FX market.

This includes facilitating formal remittance inflows, allowing international oil companies to fully concentrate their FX sales in the official market, restoring intermediated market access to bureaux de change, and refraining from ad-hoc FX auctions.

“Allowing market participants to trade FX with more flexibility across time would also contribute to deepening the FX market,” the October report said.

 

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