Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - 24th Oct 14
Saudi Move to Cut Oil Prices Is Now Russia's Biggest Economic Threat - 24th Oct 14
US Stock Market Top Is Now In Sight - 24th Oct 14
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

British Pound Collapsing Under Weight of Bankrupt Banks Liabilities

Currencies / British Pound Jan 31, 2009 - 02:06 PM GMT

By: Money_and_Markets

Currencies Best Financial Markets Analysis ArticleJack Crooks writes: Great Britain's Prime Minister, Gordon Brown, is meddling in the Bank of England and U.K. Treasury, much the same way that our Hank Paulson and Ben Bernanke have done. And now everything that Mr. Brown is struggling with underlines why his home currency has performed so poorly recently … and will continue to disappoint.


I first warned readers of the pound's problems on December 22, 2007 , in my Money and Markets column. At that time I forecasted that the British pound would be the U.S. dollar of 2008. And that forecast did not disappoint.

Back then, the pound traded above $2, and now it's sitting at a measly $1.43, a whopping 27% decline!

And the damage isn't limited to just U.S. dollar gains …

The euro has risen to a record high against the pound as recently as December 30, 2008 … even while the euro had fallen to $1.40.

British Pound vs. U.S. Dollar

Euro vs. British Pound

And in my opinion …

Things Aren't Going to Get Better For the Pound Anytime Soon —

We learned last week that the Royal Bank of Scotland (RBS) will probably post somewhere near $41 billion in losses for 2008. This puts it in-line to be the largest annual loss by a British company. We also learned the U.K. government will up its stake in RBS to 70%.

This intended move sent tremors rippling through the entire U.K. banking system.

Talk is that RBS will be required to loan out certain amounts of money to “credit worthy” borrowers. This “creeping nationalization,” as Bloomberg called it, isn't sitting well with investors.

So like the United States, U.K. banks are dazed and confused and scurrying for refuge. And the U.K. real estate market is in a similar, dismal situation …

  • Commercial real estate values fell 15% in the fourth quarter. The last drop of that magnitude happened back in 1987.
  • Residential real estate hasn't fared any better, with home prices having lost value in the last 14 consecutive months.

The International Monetary Fund just put out its forecast for the U.K. economy: a somber 2.8% contraction.

Vince Cable, a U.K. politician and once the chief economist at Shell Oil, recently had this to say:

“Having let personal debt soar while allowing a huge bubble to form in the housing market as the banking sector ran riot, the U.K. will now be saddled with the consequences for many years.

“Having seriously overestimated government revenue from the City of London and the housing market, there will be a serious fiscal problem for a long time. Future governments will have to take a very disciplined approach to public spending.”

So after seeing how things have played out in the U.S., we can expect …

Déjà Vu From the U.K.

The pound is heading down to 1985 levels!
The pound is heading down to 1985 levels!

Inflation in the U.K. is coming down in a hurry. And so are Bank of England interest rates in an effort to support the fiscal crapshoot that lies ahead.

With the U.K. economy taking a tailspin, the outlook for their currency is muddy.

And while both the U.S. and the U.K. have similar economic challenges, here are the two key differences that suggest a stronger dollar vs. the pound:

  1. The U.K. economy, its government and the Bank of England are behind the curve set by the U.S. economy, the U.S. government and the Federal Reserve.
  2. Substantial deleveraging of dollar-based credit continues … and is driving funds back into the U.S. and the U.S. dollar, increasing its relative value.

Next Stop for the Pound?
Heading Down to 1985 Levels!

George Soros, who made billions of dollars by selling the pound in 1992, recently said that he rode the pound down to the $1.40 area and then unloaded it. I can see where he's coming from — the $1.40 level had become a target of mine as the pound moved incrementally lower over the course of 2008.

And that's where the pound sits now, which means six years of gains have been erased in about 15 months!

But the way I see it, Soros might want to hop back aboard the bear wagon. I think the pound can still go lower. The chart below shows a potential landmark target for the British pound.

british vs. U.S. dollar monthly

If the U.S. dollar remains strong for the reasons I've laid out here today, and the U.K. economic picture remains bleak, the British pound will likely push below $1.40.

If and when it does, there's little technical support stopping it from bleeding out to the extreme low ($1.08) going back to levels not seen since February 1985.

Best wishes,

Jack

P.S. Are you hungry for the latest on what's going on in the currency markets? Then be sure to check out my blog .

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 .

Money and Markets Archive

© 2005-2014 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

Free Report - Financial Markets 2014