Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
TSLA, LRCX, TSMC Stock Earnings and Trend Analysis - 26th Nov 23
A Golden Setup: Gold Price Trend Forecast Report - 26th Nov 23
Gold Stocks Winter Seasonal Rally - 26th Nov 23
Elections in South America and Europe Reveal Backlash against Socialism - 26th Nov 23
LMT, JNJ and ASML Stock Earnings and Trend Analysis - 23rd Nov 23
When AI Hallucinates - Top AI Tech Stocks - 23rd Nov 23
Stock Market Ignoring Hawkish Fed - 23rd Nov 23
Stock Market Trend Trajectory into Year End 2023 - 22nd Nov 23
Copper/Gold Ratio: Still Counter-Cyclical - 22nd Nov 23
Learn to Use the FORCE! - How to Really Get Rich - 21st Nov 23
Quad Witching Cracks Stock Market Nuts - 18th Nov 23
Biden Bizarrely Brags About Lower Budget Deficits as US Federal Debt Skyrockets - 18th Nov 23
Silver Price Between a Rock and a Hard Place - 18th Nov 23
The Most Important Chat GPT Tech Reveal of 2023 - 18th Nov 23
AI Tech Stocks Portfolio - 9th Nov 23
Micron MU Stock Trend Analysis - 9th Nov 23
TSMC Stock Trend Analysis - 9th Nov 23
NVIDIA Stock Trend Analysis - 9th Nov 23
The “new ChatGPT” just launched - 9th Nov 23
Stock Market SP500 Trend Expectations - 8th Nov 23
Stock Market SPX Bounce Underway, but Resistance Upcoming - 8th Nov 23
Stock Market Investing - Aren't We Here To Make Money? - 8th Nov 23
Gold, Silver, Precious Metals Slide Re-starts - 8th Nov 23
AI Rules Everything! A.R.E.A.M. - 8th Nov 23
Stock Market Seasonal and Presidential Cycle Analysis, Bitcoin Final Warning! - 5th Nov 23

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