Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Does the Bank of England Want a Weak British Pound?

Currencies / British Pound Sep 25, 2009 - 07:16 AM GMT

By: Seven_Days_Ahead


After a steep sell off against both the Dollar and the Euro in the wake of the financial crisis, the Pound began to bottom out during the 1st quarter of this year, as it became evident that other G7 economies were doing as badly as the UK, if not worse.

As the 2nd quarter evolved, and data began to steady, with the PMI services survey showing solid improvement away from the lows, expectations turned towards an early UK economic recovery, which was borne out by improving data coming from the housing market.

Where only a few months earlier, analysts were predicting the housing market correction would extend into 2010, suddenly the Nationwide and Halifax house price surveys were throwing out readings showing sporadic month on month price increases.

While at first these were dismissed as a blip, subsequent reports have confirmed the housing market is in a recovery. However, the optimism over the UK economy took a serious knock when Q2 GDP released in July, came in much worse than expected, albeit a big improvement on Q1 and Q4 2008.

The Pound began to consolidate its recent gains, even though business investment showed unexpected weakness too. But what has worked against the Pound over the last 6 to 8 weeks is the Bank of England.

After initially announcing at the July MPC meeting, there would be no increase of its QE program, against market expectation, policy makers reversed their decision in August, but not only did they increase QE, but by double the amount expected; £50.0B instead of the £25.0B anticipated. This knocked the Pound against both the Dollar and the Euro, but worse was to come. In spite of a continuous steady stream of data showing the economy recovering, the August Bank of England quarterly inflation report, once more sought to play down the obvious, albeit fledgling, economic recovery, once again undermining Sterling.

More was to come, King has recently publicly flirted with the idea of reducing interest paid on Bank balances held at the Bank of England, as a means of forcing the Banks to stop hoarding cash and lend it. This hasn’t yet been implemented, and recent minutes show no discussion has been held, but the market having been surprised twice during the summer, took the rumours seriously and again the Pound suffered as such a move was considered another form of monetary easing.

However, after no surprises were sprung by the recent September meeting or minutes, the Pound again tried to recover, but once again governor King has popped up and in an interview has intimated the Bank would be comfortable with a weaker Pound.

While this has merits for the much reduced manufacturing sector, it acts to drive up import costs, especially oil, which has enjoyed a strong rally over recent months, and acts to offset domestic disinflation.

King may see this as a means of holding deflation at bay, but the official CPI stands at 1.6%, against a target of 2.0%, so hardly deflation.

We judge the Bank is trying to hold down the value of Sterling as a means of providing monetary stimulus, while making UK assets look attractive for foreign investors, but for traders a strong Pound looks a thing of the past.

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

© 2005-2019 - 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

6 Critical Money Making Rules