Wednesday, 3 June 2009

The mysterious sterling rally

Would anyone like to have a go at explaining the recent sterling rally against the dollar.

For what it is worth, my view is that it is not a case that Sterling looks good, but that the dollar has begun to look very bad. It is that trillion dollar US fiscal deficit and the zero interest rate. It isn't the kind of macroeconomic framework that supports exchange rates.

11 comments:

Anonymous said...

Maybe traders are driving it up, so they can dump their positions to Jo Public. It's forming a double top, so you'll have to be fast if you want to et out.

Mickanomics said...

The dollar is weakening against a basket of currencies - see the dollar index:

here

At the same time the pound is rising against a basket, follow this link and click the HTML button and scroll down to the bottom:

here

Acorn said...

Would it possibly be certain foreigners, buying cheap sterling, to be ready to buy lumps of certain State owned Banks?

Stevie b. said...

It's just a race to the bottom for all the major currencies. The £ was in the lead for a while and one-by-one, the others will catch up and we'll be back at square-one - except that the end-result (and it could take many years) will be much higher natural-resource prices for everyone and probable stagflation.

Man in a Shed said...

Maybe the Chinese have figured out they are *never* going to get repayed in full.

The US is running and even more suicidal financial policy than the UK ( and that takes some doing ).

Phill Tomlinson said...

UK £ is just as flawed as the dollar if not more. Steve b is correct, just a classic race to the bottom. Sterling will fall again later this year or next as more carry trades unwind.

Just like the recent dollar rally - a load of shorts have to be covered therefore driving up the price. It's all false and as the economy deteriates more sterling will be sold.

mike said...

Sterling is a safer bet than the Dollar or Euro.

Thai said...

I think there is a massive dollar carry trade going on beneath the surface. Since US short term interest rates are much lower than British short term interest rates, the dollar is the preferred medium to borrow in and as the traders borrow, it pushes our long term rates up and causes the dollar to drop- and the money is moved into foreign equities, commodities, etc...

I think we are all in for a wicked correction when the dollar carry trade unwinds.

Anyway, just my guess.

Anonymous said...

The US is printing money faster than everyone else?

mark said...

The way I see it there is zero chance that the Obama Administration and Democrat controlled congress will ever vote to cut spending even by 1c. They would rather go bankrupt. With the likelihood of greater than expected declines in tax revenues, continued increase in unemployment, continued fall in real estate prices the fiscal deficit will exceed $2 trillion for as far as the eye can see. The end result is that more and more money gets printed, interest rates rise and the US Dollar falls. Can't see anything else happening for the next few years atleast.

William said...

Markets look forward. Last year, they looked forward to the government running the country into the ground. Today, they look forward to the government being replaced by a fiscally more responsible government. Given the last few weeks activity, don't you feel a bit more optimistic for our future? I know i do.