Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
EU REMAIN Population Forecasts - England 4.1 million Explosion, London Migration Crisis - 28th May 16
A Guide to the Trump-Sanders Debate - 28th May 16
Gold And Silver – At Significant Support. New “Story” Developing - 28th May 16
The Next Systemic Lehman Event - New Scheiss Dollar & Gold Trade Standard - 27th May 16
Energy and Debt Crisis Point to Much Higher Silver, Metals Prices - 27th May 16
Gold Junior Stocks Q1 2016 Fundamentals - 27th May 16
These Crisis Markets Are Primed to Deliver Big Gains, Platinum Never Cheaper! - 27th May 16
Operation Black Vote BrExit Warning for the Wrong EU Referendum - 27th May 16
UK Immigration Crisis Hits New Extreme, Catastrophic ONS Migration Stats Ahead of EU Referendum - 27th May 16
Many of the World’s Best Investors Made Their Fortunes This Way…And You Can Too - 27th May 16
The Ugly Truth About Stock Market Manipulation and Gold Prices - 27th May 16
Gold Price Looking Vulnerable While Gold Stocks Correct - 27th May 16
The 5 Fatal Flaws of Trading - 27th May 16
The Next Big Crash Of The U.S. Economy Is Coming, Here’s Why - 27th May 16
A New Golden Bull or Has the Market Gone Too Far Too Fast? - 27th May 16
It Feels Like Inflation - 26th May 16
Negative Interest Rates Set to Propel the Dow Jones to the Stratosphere? - 26th May 16
S&P Significant Low has Occurred – Not Likely! - 26th May 16
Statistics for Funeral Planning in UK Grave - 26th May 16
Think Beyond Oil And Gold: Interview With Mike 'Mish' Shedlock - 26th May 16
Hard Times and False Mainstream Media Narratives - 26th May 16
Will The Swiss Guarantee 75,000 CHF For Every Family? - 26th May 16
Is There A Stocks Bear Market in Progress? - 26th May 16
Billionaires Are Wrong on Gold - 26th May 16
How NOT to Invest in the Gold Market - 26th May 16
The Black Swan Spotter...Which Saw the Oil-Crash coming; now says the “Invisible Hand” will push Brent to $85 by Christmas - 26th May 16
U.S. Household Debt Still Below 2008 Peak - 25th May 16
Brexit: Wrong Discussion, Wrong People, Wrong Arguments - 25th May 16
SPX is at Strong Resistance - 25th May 16
US Dollar, Back From the Grave? - 25th May 16
Gold : Just the Facts Ma’am - 25th May 16
The Worst Urban Crisis in History Could be Upon Us - 24th May 16
Death Crosses Across The Board Are IRREFUTABLE Stock Market Sell Signals - 24th May 16
Bitcoin Trading Alert: Bitcoin Price Stays below $450 - 24th May 16
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16
Will Venezuela Be Forced to Embrace the US Dollar? - 21st May 16
Danish Central Bank Stumbles with Its Currency Peg to the Euro - 21st May 16
SPX Downtrend Underway - 21st May 16
George Osborne Warns of More Affordable UK Housing Market if BrExit Happens - 21st May 16
Gold And Silver 11th Hour: Globalists 10 v People 0 - 21st May 16
David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - 21st May 16
Gold Stocks Following Bull Analogs - 20th May 16
The Gold Chart That Has Central Banks Extremely Worried - 20th May 16
Silver Miners’ Q1’ 2016 Fundamentals - 20th May 16
Stock Market Rally At the End of the Road? - 20th May 16
British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - 20th May 16
NASDAQ 100, FTSE, and British Pound - When Rare Market Data Screams, Listen  - 20th May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

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

© 2005-2016 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

Catching a Falling Financial Knife