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Bank of England Plays Catch-up at Expense of Sterling
UK interest rates are now below those of the Eurozone for the first time in the life of the euro. Today's 150-bp cut is a grave assault to the British pound's central bank reserve currency role.
The big difference in EM currencies today with 10yrs ago is that the Asians have huge amounts of fX reserves on hand. But some problem currencies in Easter Europe may bear more of the brunt of speculative attacks. Having said that, it's important to note that many big spec players are stilll licking their wounds from the overall market volatility so it's doubtful that they could mount the same as was done in 1998.
Ashraf
What's your opinion on the emerging markets' currencies? Any possibilities to be manipulated by rogue speculators again?
Have really enjoyed and benefited from following your analysis for several months.
Have seen your call for GBPUSD to target 1.62 by year end if it can get by critical resistance at 1.58. On daily charts, 62% fibonacci of last move down from 1.6671-1.4557 is at 1.5857; 79% fibo at 1.6214. Why do you predict 1.62 vs. 1.58 target for year end? Thanks very much.
EURGBP directional trade remains up as UK rates will remain below Eurozone for a much more and that's the first time in the life of the euro. The notion that ECB will not have to cut rates by as much as BoE is a major factor. The fact that the ECB's inflation mandate is set by the ECB itself whereas the BoE's inflation target is set by the GOVERNMENT suggests that the govt will let the inflation priority pass for now because it is the very target that it had imposed is the main reason behind the deepening UK recession--resulting from BoE's refusal to inject liquidity immediately after Northeren Rock, etccc... EURGBP seen at 0.8160
Just found your site via Seeking Alpha.
Some bears reckon that the UK will need to call in the IMF as the economy shows sign of serious structural collapse over the coming months. The debt fuelled Service Sector multiplier will go into reverse, with GDP falling -3%+ during 2009.
If you sat in the pound which currencies look solid?
I have got the USD & NOK.
My sense is that the USD will continue to be the big directional trade.
I can't work out how the Euro/Sterling is going to pan out.
Thank you
All the best.
Gold's prospects will improve at the first sign of stability in the world economy (not nececessarily US economy). Once US interest rates drop to 0.50%, the system will be ultra liquified, and i dont see the situation as bad as in Japan, where banks simply hid bad debts under the desk and let them rot for years. US banks/govt are at least taking some hard measures. dollar to remain low yielding currency, which means it will underperfom during every upcoming bout of carry trade building.
With interest rates being cut to zero world wide like Japan did in the 90's .. What happen's to the U.S dollar in a depression or a Japan like situation world wide and which currency would be best to hold under such circumstanaces ? Would holding gold be a good idea in a world depression ?
Thanks
Frank
Like I said in the article, GBPUSD downside is inevitable. $1.55 will be seen again. You have to realize that old fashioned fundamentals do not apply in currency reactions to wild policy moves such as today's, which happen every 30-40 years.
Hamish,
in response to your question in the previous article, yes, i expect the dollar decline to be temporary later in the year coinciding with bear market rally in stocks. $1.37 is the max target for the euro during the upcoming equity bounce.
Ashraf
With such a huge rate cut, this GBP/USD is strong as an OX. Unreal!!??
EUR/USD more predictable.
How low will GBP/USD go? Please update. As always, thanks.
Steve Tan - ex-cmc customer in NYC