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
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

British Pound Currency Trends and the UK Base Interest Rate

Interest-Rates / UK Interest Rates Jan 12, 2010 - 04:24 AM GMT

By: Nadeem_Walayat

Interest-Rates

Best Financial Markets Analysis ArticleThis analysis forms part of a series that aims resolve in an accurate UK interest rate forecast for 2010 which follows in depth analysis and forecasts for UK inflation and economy.


Sterling Trend and the UK Base Interest Rate

The below graph shows the UK base rate and sterling trends against the U.S. Dollar and Euro to test the widely held hypothesis that Rising UK interest rates results in a rise in the exchange rate and conversely cuts in UK interest rates results in a fall in sterling.

The Pound / Dollar trend suggests that GBP tends to lead UK interest rates i.e. sterling has a tendency to rise against the Dollar ahead of UK interest rate hikes and a tendency to fall against the Dollar ahead of UK interest rate cuts. The most recent price action has seen sterling rally from £/$1.40 in early 2009 to above £/$1.60 as of the present which therefore implies that the currency markets are discounting future interest rate hikes.

The Pound / Euro trend suggests that the objective is aimed towards a stable exchange rate against the Euro i.e. less volatile hence interest rates are used in an attempt to limit fluctuations as we saw between 1999 and 2007, as when the £/Euro rate was high at 1.60, interest rates were cut, and when the £/Euro was below the floor of about 1.40 then interest rates had been steadily increased so as to maintain the 1.40 floor. This is part of the Bank of England's objective of ensuring price stability by tracking the Euro.

However during 2008 and 2009 we saw a crash in sterling that traded below 1.10 to near parity with the Euro as the Bank of England abandoned everything in the interests of preventing financial and economic armageddon. However as the banking system has gradually stabilised it is highly likely that Bank of England focus will again shift towards price stability which means keeping sterling with an range against the Euro.

The £/Euro has managed to trend higher from near parity 12 months ago to today stand at 1.10. This is suggestive of a higher range then seen over the past 12 months i.e. a probable wide target range of between 1.10 to 1.30 against the Euro, therefore the current rate is at the floor which suggests a rise towards the target mid range of 1.20 which on face value suggests further downside trend is limited and more than likely that the Pound will rise against the Euro towards 1.20, which therefore suggests UK interest rates should be relatively higher than the ECB interest rate to reinforce this trading range.

In summary, the sterling trend is suggestive of the Bank of England targeting a £/Euro trading range of between 1.10 and 1.30, which is therefore suggestive of relatively higher UK interest rates against the Euro-zones which my next analysis will look at.

UK Interest Rate Forecast 2009

The UK interest rate forecast of early December 2008 for 2009 forecast that UK interest rates should decline to 1% (from 3%) by early 2009 and remain there into the second half of 2009.

Forecasts for UK Inflation and Economy 2010 and Beyond

The below are the concluding forecast graphs from in depth analysis for UK inflation and economy that build towards the UK interest rate forecast for 2010 as well as the inflation mega-trends ebook. To receive the final analysis and forecast in your email in box, ensure you are subscribed to my always free newsletter.

UK Inflation Forecast for 2010

UK Economy GDP Forecast for 2010 and 2011

Source: http://www.marketoracle.co.uk/Article16417.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market . Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2022 http://www.MarketOracle.co.uk - 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