Gloom for UK pounds sterling?

[jko]

Worldfirst have just released this alarming e-news to subscribers. So wait let's to see what happens to sterling this week?

Sent: Tuesday, August 06, 2013 10:17 PM

Subject: Back to the 'bad old days' for GBP?

"At the time of writing sterling has had a great start to the week, following a fantastic run of data and slightly weaker economic performance from the US and Eurozone. Unfortunately these gains are only making up for losses that have taken place over the past month, as the market has come round to the widely held belief that the Bank of England is going to throw a lot of loose monetary policy at the economy over the course of the next year. This is despite the recent showing of economic strength we’ve seen in the UK, with all the PMI numbers for the last couple of months demonstrating that the situation is improving.

The fact remains that unemployment is still too high in the UK at 7.7%. Meaningful and sustained growth is by no means guaranteed at the moment, and while inflation is not steaming ahead as many had feared, there is still a large differential between price rises and wage increases.

The Bank of England is likely to use ‘forward guidance’, the details of which are due out this Wednesday (tomorrow), to improve the economy. This means low rates will stay in place for longer in a bid to get businesses to invest, consumers to borrow and banks to patch up lending via an increased demand for mortgages.

This all sounds great in principle, and it would be, apart from the likely impact on the pound. The prospect of low interest rates, especially when we are being told that they will be low for a long, long time (2+ years), are hemlock for a currency.

I am always loathe to base predictions on hypotheticals, but the risks of GBP taking a trip to test multi-year lows owing to these forward guidance measures is there for all to see. The prospect of this situation, especially if the data from the UK economy also starts to wobble, cannot be underestimated.

In the short term, we are expecting a steep decline in GBP across the board tomorrow – maybe by a couple of per cent. Longer term a GBPUSD print in the 1.47s and GBPEUR towards 1.10 is what a lot of the market are looking for through Q3.

Obviously the nature of the markets dictate that no one knows for sure what is going to happen. However, anyone with associated currency risk would be advised to contact their dealer for a chat about their circumstances and how to manage their exposure during this difficult period for sterling"

[Huayrat]

No chance... only way is up for the pound

[wilcopops]

Can't see it's "gloom" either way. Just the balm-pots in the money markets reacting to gossip - what they always do.

[BrianCR]

It's on it's way up (I hope) my pension from 2 days ago is the highest exchange I have received in quite few months! - GO GBP - GO!

[i claudius]

The trouble with these forcasters is that they are like the wind ,they blow all ways ,the truth is that they ,like us are not sure ,they like us are just gamblers ,just on a larger scale.

[IsaanAndy]

More importantly it is what the GBP is doing against the THB, currently on the way up towards 48 at 1020 this morning.

[alant]

I would have headlined this "Continued Gloom for £ sterling" but there you go.

I am still trying to evaluate the effect of the Canadian being i c sterling but I understand he is anti further Q E AKA money printing.

The continued assertion by the uk powers that be that a low £ is good for exports may continue for some time but it is stoking inflation all the time and increasing government debt. Should the opposition have the nous to understand this and make political capital of it there may be a change but at the moment I see nothing but the Emperors new cloths fiscal policy being applied.

[Stjohnm]

I can see Sterling staying around its current Rate for a while its mid market Rate vs the Baht was 48.21 only slightly down on its position 12 months ago, true it did dip to 43.58 in April but has made back most of those losses, it will hover at its current rate for the foreseeable future, given time it may head north of 50 in the next few years but it would need a weakening of the Baht to take place.

[chiang mai]

What the OP fails to mention is that forward guidance comes with caveats such that if inflation does reach a specific threshold then the comitment on rates is void.

I agree with the previous poster, I think GBP/THB is going to stay broadly where it is, 46 to 49 ish and that it will take a significant event on one side or the other to make it move outside of those boundaries.

[indyuk]

Surely the author of the press report is attempting to fraudulently manipulate the money market.

Just as countries are when they deliberatly adjust the market rate for their own curency.

Surely in both cases such behavoir renders the World Money Market reports and trends grossly misleading.

Just sayin'

[abrahamzvi]

I think that NOBODY, but nobody, is in a position to forecast with a degree of certainty the movements of currencies, be it the US$, the EURO, GDP or even the CHF. What has been taking place world wide since 2008 QE- i.e. printing of money and keeping interest rates a near zero, defies all economic theories. Billions of $, which are backed by nothing, i.e. an artificial currency, are produced daily, a procedure which normally would create inflation and hyperinflation. What is happening now no (or nearly no) inflation and in some countries like Japan even a deflation takes place. Can any economy scientist explain this??

My only advice is try and spread your currency risks. It may, just may, help under certain circumstances.

[SpeakeasyThai]

The baht is artificially high not so much the pound is low. It's bad for the Thai economy.

[yoshiwara]

'In the short term, we are expecting a steep decline in GBP across the board tomorrow –'

........ Well, let's see how that pans out today.

[yoshiwara]

'In the short term, we are expecting a steep decline in GBP across the board tomorrow –'

........ Well, let's see how that pans out today.

So far in the Asian markets, nothing, except against JPY.

[cardholder]

Let the gloom continue - 47.74 (net) from K Bank today

[chiang mai]

The baht is artificially high not so much the pound is low. It's bad for the Thai economy.

The BOE spent GBP 375 bill on QE to weaken the Pound whereas the BOT spent USD 20 bill to weaken the Baht, tell me again which one is artifically high?

[PattayaPhom]

The BOE and in particular Mervyn King have deliberately kept Sterling low to boost exports. Now its the new guy at the reins. Car sales up, exports up and rising house prices, highest production since the early ninties...this has already had a positive effect for Sterling so counter measures are needed....the old boy brigade stick together and this article has no founding, just something dreamed up in The Trafalger Club over cigars and brandy.

[chiang mai]

The BOE and in particular Mervyn King have deliberately kept Sterling low to boost exports. Now its the new guy at the reins. Car sales up, exports up and rising house prices, highest production since the early ninties...this has already had a positive effect for Sterling so counter measures are needed....the old boy brigade stick together and this article has no founding, just something dreamed up in The Trafalger Club over cigars and brandy.

Say what about production!

And exports are up but nothing to get too excited about:

As for house prices, don't get me started, if you strip out London from the Land Registry report then the picture is flat at best.

Edited August 7, 2013 by chiang mai

[pookiki]

Quanitative easing is nothing but a capitalist Ponzi scheme. The central banks in the US and the EU are printing money to buy bonds from banks. The banks, in turn, are investing in speculative markets in much the same manner that was done in 2008. Money is being churned and the markets are up BUT nothing real is being done to solve the serious economic conditions that exist - especially unemployment and GDP growth. The chickens will come home to roost, again. But with globalization, most people will be in the same shit hole together.

[yoshiwara]

The BOE and in particular Mervyn King have deliberately kept Sterling low to boost exports. Now its the new guy at the reins. Car sales up, exports up and rising house prices, highest production since the early ninties...this has already had a positive effect for Sterling so counter measures are needed....the old boy brigade stick together and this article has no founding, just something dreamed up in The Trafalger Club over cigars and brandy.

Say what about production!

And exports are up but nothing to get too excited about:

As for house prices, don't get me started, if you strip out London from the Land Registry report then the picture is flat at best.

Londoners strip out the rest of the UK, so that's all right then.

[Card]

"The Bank of England is likely to use ‘forward guidance’, the details of which are due out this Wednesday (tomorrow), to improve the economy. This means low rates will stay in place for longer in a bid to get businesses to invest, consumers to borrow and banks to patch up lending via an increased demand for mortgages.

This all sounds great in principle, and it would be, apart from the likely impact on the pound. The prospect of low interest rates, especially when we are being told that they will be low for a long, long time (2+ years), are hemlock for a currency."

This has been on the cards for some time and the markets expect interest rates to stay low for a long time - it's not news to them so won't affect forex whenever it is announced and does not seem to have affected the pound recently. The unexpectedly 'good' growth rates announced in the last few days will keep the pound up for a while at least, especially as the baht will be weakened by the new Thai government spending spree that's just been announced.

Edited August 7, 2013 by Card

[JSixpack]

just convert all your GBP to baht now and be done with it and let's close the thread.

[Maybole]

This is an attempt to fiddle the market

[churchill]

Carney unveils Fed-style forward guidance

http://www.cnbc.com/id/100944885

So low interest rates for a long time .....

Pound should go down but markets are topsy turvy

SO ... Interest rates will remain at 0% until the suicide rate for savers is at least 7%

Edited August 7, 2013 by churchill

[chiang mai]

It's a non-event, markets weren't expecting a rate increase anyway and now it's almost certain, having said that, people who have studied the latest anouncement in detail say that it's littered with escape clauses so it's meaningless. Expect some volatility in GBP/X until the news filters through and people begin to understand what's been said and that may take a day or so, then it'll be back to business as usual, I expect GBP/THB to stay in the same range.

[Commander Tamson]

To conclude then:

No one really knows, but among all the different opinions of all the expert economists and Forex traders, one of them will probably be right.

In my own very humble opinion, Carney may be the best thing to have happened to the UK economy for decades and he's likely to only pay lip service to Osborne and the Treasury. There's obviously a very good publicist at work - just look at the coverage he has in today's broadsheets and on the web. I think over the coming months he'll slowly but wisely build a new team around him.

And as far as 'Forward Guidance' and 'Quantitative Easing' is concerned, I think that the market reaction is way more interesting than the possible policy outcomes which, again in my own humble opinion, only emphasises my first point that no one has a clue.

[chiang mai]

[bigbamboo]

I used to be in the forex game and the only thing you know for certain is that nothing is for certain. It's a bit like forecasting the weather.... you can predict short term but long term there are too many imponderables.

A race horse trainer was once asked if his horse was a 'sure thing' for a big race. He replied that there were only three 'sure things' in this life...... death, taxes and student nurses.

[Huayrat]

so OP ... The opposite to your forecast has happened.. Its got alot stronger today lol

Edited August 7, 2013 by metisdead
Underscore removed.

[chiang mai]

so OP ... The opposite to your forecast has happened.. Its got alot stronger today lol

Let's see in 48 hours after it settles down, what you' re seeing is knee jerk.

At some point over the next 48 hours the markets will come to realize that current unemployment is 7.8% and that it falls at a rate of 0.45% per year on average, that means that the next rate increase is scheduled for 2015 which is where it was peggged anyway before this anouncement was made.

The other coin that will drop of course is that the UK is at the mercy of international markets and when they dictate that rates must rise, rise they will and with the end of the Fed's QE program looming that is going to be much sooner than later. The more I think about this anouncement the more I think it's just a part of the hearts and minds campaign that's been underway for some time in the popular press.

Edited August 7, 2013 by metisdead