Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

British Pound Renewed Weakness

Currencies / British Pound Aug 31, 2009 - 02:35 AM GMT

By: Seven_Days_Ahead


Best Financial Markets Analysis ArticleThe Macro Trader’s view: On the 30th July, 4 weeks ago, we wrote a piece entitled “How vulnerable is Sterling”, our conclusion at the time was that we thought it not very vulnerable against the Euro, since we judged, based on available macro economic data available at that time, that the UK looked closer to emerging from recession, than did the Euro zone, and in some respects the UK economy compared favourably against the US economy too.

So what has changed over the last few weeks?

The Euro zone economies of France and Germany have since released Q2 GDP data showing they have emerged from recession, moreover, other data:

  • The Euro zone PMI composite survey,
  • The German PMI Services survey,
  • Both German and Euro zone ZEW surveys, and
  • More recently German IFO.

Have shown improvement which lends support to the surprisingly better GDP data that was initially taken not only with disbelief, but discounted on the grounds the improvement would prove unsustainable.

In the US while data has remained mixed, with:

  • Retail sales undershooting consensus,
  • CPI & PPI falling further than expected, and
  • The recent ISM non-manufacturing survey disappointingly coming in below consensus,

There have been some key positives:

  • Non-farm payroll has continued to moderate showing a steadily declining pace of job destruction,
  • The ISM manufacturing survey continues to improve, but more importantly
  • The Housing market has shown further important signs of recovery with both Existing and New home sales coming in higher than consensus over the last week, indeed New home sales, a GDP component, rose by 9.6% month on month as reported only yesterday.

Furthermore, the Fed’s Lacker said today “the economy (US) is levelling out and housing is no longer a drag.

While all of this explains the international environment, what has changed in the UK?

The Bank of England has surprised the market several times in the last few weeks by 1st  resuming its QE after suspending it the previous month, but more importantly, at the same time increasing it to £50.0B, this hit Sterling.

Then the Bank of England quarterly inflation report painted a picture of subdued inflation over the two year target period, based on current interest rates, which surprised both interest rate traders and currency dealers and undermined the Pound.

But if that wasn’t enough, the recent MPC minutes revealed that Governor King and two colleagues wanted to increase the QE by a larger £75.0B, indicating the Bank may not yet be done with easing and this too depressed Sterling.

But probably the biggest shock came today when quarterly investment data was reported to have shrunk by 10.4% in the 2nd quarter and by 18.4% year on year. This not only explained the shock Q2 GDP contraction of -0.8% released a few weeks ago but probably makes any upward revision unlikely.

However the UK economic picture isn’t all black, retail sales continue to expand and the housing market continues to confound the pessimists by showing clear signs of revival.

But as for the Pounds fortunes, they look less optimistic than they did 4 weeks ago, but much of the negative UK data quoted above is already historic, the Pounds fortunes will be decided by the run of data as we move forward and there are still strong indications that the economy could emerge from recession later this year, so short/medium term Sterling looks vulnerable, but longer term it should stabilise and gradually recover.  

Mark Sturdy
John Lewis

Seven Days Ahead
Be sure to sign up for and receive these articles automatically at Market Updates

Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level technical and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

© 2009 Copyright Seven Days Ahead - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Seven Days Ahead Archive

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in