Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

British Pound in for a Sharp Fall?

Currencies / British Pound Mar 06, 2010 - 02:21 PM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleIn my December 26 Money and Markets column I focused on the outlook for 2010, and the looming threats to global risk appetite. I warned that sovereign debt problems posed a major threat to global economic recovery. And I concluded that this threat represented a catalyst for a return of global risk aversion.


I also said that in a global crisis, these sovereign debt fears have the ability to be contagious. Such fears can destroy investor confidence in the capital markets of troubled countries, as well as in the overall global economy.

And when confidence wanes, capital flees … a surefire recipe for falling dominoes. That’s especially true in the wake of a deep global recession that has left many countries with bloated deficits and debt loads.

Despite the European leadership’s attempt to lessen the sense of urgency in the euro zone and despite the ambitious plans rolling out to shave outsized deficits, the problems with governments’ finances are not finding a resolution.

More likely, it’s just the beginning of another major destabilizing force for the global economy. And the result is looking more like another bout with recession … or perhaps depression.

Sovereign debt is setting the dominos up for a fall.
Sovereign debt is setting the dominos up for a fall.

Here’s a brief look at how the dominos are setting up to fall, and ultimately why I think the British pound is the next vulnerable currency, as fear and instability spread from country to country.

Falling Domino #1: Dubai, the Wakeup Call

In late November the Dubai government created a hiccup in the rosy plans that many market participants were increasingly hitching their wagons to: A V-shaped economic recovery.

All of the sudden the new, innovative center for global finance was in default. And contrary to what was assumed, its rich neighbors weren’t there to provide a lifeline.

Now Dubai World’s debt holders are getting only 60 cents on the dollar for their government bond investment.

Falling Domino #2: Greece, Next in Line

Greece, the weakest of the sixteen-member European monetary union, the euro, was running a budget deficit more than four times the limits set forth in the euro-zone’s fiscal constraint guidelines.

The ratings agencies took the alert from Dubai. And they started slashing Greece’s sovereign debt ratings sending out a warning signal to all debt holders and making Greek government debt refinancing that much more difficult.

Falling Domino #3, #4 and #5: Portugal, Ireland and Spain The Next Troubled Spots

Greece isn’t the only euro-zone country in trouble … Portugal, Ireland and Spain all have severely bloated deficits and debt levels. That puts them in violation of European monetary union (Emu) guidelines, not to mention diminishes their outlook for economic growth — a tool desperately needed to start dealing with their red ink.

S&P stripped Spain of its AAA rating.
S&P stripped Spain of its AAA rating.

Consequently, the ratings agencies have put these weak countries under the magnifying glass. And ratings and outlooks have been downgraded. For example, Spain, the third largest economy in the euro zone, lost its AAA rating in January.

In prior Money and Markets columns I’ve discussed in more detail how the developments within these troubled Emu members have exposed structural flaws in the euro and have created an irreparable moral hazard.

Now, European leadership has stepped in and promised to provide support to the most immediate need: Greece.

By doing so it opens the floodgates. Meaning there is nothing to stop the other weak, fiscally-irresponsible members from lining up hat-in-hand to be bailed out by the stronger, more fiscally-responsible ones.

As for the euro, this total breakdown in the foundation of the currency union has it on a path for destruction or, at best, an extended period of uncertainty.

Falling Domino #6: The UK, Looking Grim

The next, most vulnerable and biggest domino in line to fall is the UK. Among G-7 countries, the UK has the weakest performing economy, the largest deficit and the worst deterioration of its debt position.

As conditions get worse in the euro zone and it becomes increasingly evident that there are no clean fixes, the UK is the most likely candidate to come under the gun.

The pound is  becoming more exposed to speculators.
The pound is becoming more exposed to speculators.

The British pound plunged to its lowest level in 24 years against the dollar at the height of the financial crisis … now just a year later it appears another test of that level is in the cards.

And that’s where the outlook for the pound looks grim. Already, this week, negative forces have gathered against the pound taking it to its lowest level vs. the dollar in more than ten months!

So while the uncertainty about the UK government’s finances continues to build, I expect the pound to be the next victim of currency speculators.

Falling Domino #7: The U.S.? In the Crosshairs

In this spread of sovereign debt fears, bond market pressures and falling dominos, the U.S. is in everyone’s crosshairs. And in a scenario where a sovereign debt crisis spreads through the major economies of the world and impacts some of the largest, most liquid currencies, the world doesn’t look like such a safe place any longer.

Therefore, if you’re evaluating your investment options, you’re likely seeking the highest probability for return of your capital rather than return on your capital. And I think the flow of global capital will demonstrate that the currency of choice will be the U.S. dollar and dollar-based assets.

Regards,

Bryan

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 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

6 Critical Money Making Rules