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Euro seen remaining 'undervalued' by Standard Life on ECB policy

The euro's almost 10 per cent slide against the dollar this year has pushed it to levels that are undervalued, and that's just how the European Central Bank wants it, according to Edinburgh's largest money manager. 

PHOTO: REUTERS

JUN 1, 20155:05 PM

[EDINBURGH] The euro's almost 10 per cent slide against the dollar this year has pushed it to levels that are undervalued, and that's just how the European Central Bank wants it, according to Edinburgh's largest money manager.

"European authorities would prefer to have the euro trading below fair value for some time," according to Ken Dickson, investment director at Standard Life Investments Ltd, which managed about US$376 billion as of Dec 31.

"So we are not expecting the euro to claw back quickly just because it's undervalued."

The common currency has slid about 3.4 per cent since Executive Board member Benoit Coeure on May 18 said the central bank would increase its purchases of euro-area assets in May and June ahead of an expected trading lull in the summer, having risen 4.6 per cent in the month before.

The ECB "will be happy with a policy mix that kept the euro low, at least for the time being," Mr Dickson said in a phone interview last week.

The 19-member currency's 9.8 per cent drop against the dollar this year was caused also by the contrast between the ECB's extending stimulus and the policy of the Federal Reserve. The Fed is debating the timing of its first interest-rate increase since 2006. The euro dropped 0.6 per cent to US$1.0918 as of 9:15 am on Monday. Mr Dickson said fair value would be about US$1.24.

While economic data in the US lagged behind analysts' forecasts in the first quarter, there "have been some signs of late that the disappointment is coming to an end," Mr Dickson said. "The dollar has further to go on the upside."

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Swiss industry shows signs of recovery in May, order books expand

JUN 1, 20154:17 PM

[ZURICH] Swiss manufacturing showed signs of recovering in May despite a strong Swiss franc, data showed on Monday, with order books perking up for the first time since the central bank abandoned a cap on the franc more than four months ago.

The Swiss Purchasing Manager's Index (PMI) for the manufacturing sector rose to a seasonally adjusted 49.4 points in May, below the 50.0 point threshold that separates expansion from contraction. The index is compiled by the Swiss SVME purchasing managers' association and Credit Suisse. "Industrial momentum appears to have only marginally slowed," the report said.

Economists in a Reuters poll had forecast contraction to slow in May to a reading of 48.4 points, from 47.9 in the previous month.

The Swiss National Bank (SNB) abandoned its cap of 1.20 francs per euro on Jan 15, exposing the export-reliant economy to a surge in the franc, which makes Swiss exports more expensive.

Growth contracted in the first quarter as a result, the first to cover the period immediately after the cap's removal, raising the prospect of Switzerland entering recession - defined as two straight quarters of negative growth - for the first time since 2009.

However, a leading indicator pointed to an economic recovery towards the end of this year, tempering concerns that the country might slip into recession.

The PMI index tracking orders, a sign of future production, rose by 4.7 points to a reading of 51.4, suggesting that a host of measures companies have taken to fight the strong franc such as discounts from suppliers and cutting staff are taking hold.

However, the subindex for employment fell to 40.7 points, its lowest since the financial crisis.

Despite the removal of the cap, the mood among exporting firms indicates that the economy will hold up better than expected.

REUTERS