Sterling

[Sir Harold m]

I have to confess that my flabber is well and truly gasted.

Now, ignoring long term doom, inevitability , bankers etc etc but just looking at the market prices of recent days I just don't get it.

Ok, I see that the general sentiment is that the Fed will taper qe soon. This can be corroborated by reductions in stock indices especially emerging markets and rising yields on bonds.

However, i thought that it was generally thought that if rates go higher in the US then the UK will face one of three options , either (I) the boe raises rates to defend GBP, (ii) the boe raises rates but Not enough to defend GBP, (iii) the BOE happily let's GBP fall because they see that as a solution .

Looking at recent climbs in GBP why are people assuming (I) instead of (ii) or (iii) .

Carney has even signalled his intention to target employment instead of CPI so it's (iii) if you believe him or (ii) if you don't .

I'm really really shocked that we've seen a relative climb in GBP recently .

Can anyone think of reasons why ? I confess I'm searching my brain for a rational or irrational reason .

Edited August 22, 2013 by Sir Harold m

[@contradevian]

Though we giggle about it on here, GBP has a certain "safe haven" status. So its been a safe haven during the recent Euro turmoil and now during the emerging market meltdown.

Also the market has liked some of the recent economic news regarding UK.

However this morning GBPUSD is looking weak and we are is due a consolidation/correction phase, especially as we are likely to be out of good news, till the next lot of PMI's.

[thefruits]

I think the apparent strength in sterling is more a repatriation of funds from EM's to 'safer' havens. Even though the UK may be facing a multitude of problems, relatively speaking, it has some things going for it vs. others. The EM situation is interesting as it implies that much of the growth seen in the last 5 years is down to hot money from the US Fed printing presses and once the flow stops then the EM story grinds to a halt. It suggests that there hasn't been progress in development of economic fundamentals in EM but rather a superficial stock and bonds story that has now sought flight back to USD / GBP havens.

I think Carney would ideally like for the GBP to be around 1.40 / USD and his words so far tend to suggest this. It would be a level that would help exporters more but ultimately its not in his hands. If the markets deem the GBP to be the least ugly sister then it will be favouored over some less stable currencies.

[evetsm]

You sure the GBP has not been actively pegged to the dollar ? I think it has. It is not like they are shy to rig rates and everything else and it is the only explanation that makes sense. imo. After all our total debt to gdp is higher than Japan , and the yen has dropped.

[@contradevian]

I think Carney would ideally like for the GBP to be around 1.40 / USD and his words so far tend to suggest this. It would be a level that would help exporters more but ultimately its not in his hands. If the markets deem the GBP to be the least ugly sister then it will be favouored over some less stable currencies.

Not a cat in hells chance of 1.40. Not seen those levels since dark days 2008, indeed I can see cable going quite a bit higher (though not immediately) indeed the bears are now targetting 1.4551 but there are a few intermediate support areas to be fought over.

Edited August 22, 2013 by aSecureTenant

[@contradevian]

fat finger duplicate!

Edited August 22, 2013 by aSecureTenant

[Wurzel Of Highridge]

Do not rule out large moves, especially if there is a centrally planned faux crisis like the last one.

[@contradevian]

A lot of capital flooding in to buy property or lend to banks on the money markets who put the money in property?

One of the great untold stories is how this process (the process of recycled trade surpluses gets lent back to countries experiencing house price booms) contributes to demand for currency and generates its own speculative momentum on the back of this idea.

Capital flows should be regulated IMO - as it doesn't allow the corrective mechanism of currency levels to do its job of correcting trade flows.

The recent news on house prices may have been the starting gun.

House price data doesn't have the power to move cable as much as PMI's unemployment etc, and BoE utterances from Merv now Carney. And money is only flowing into London prime, so until the Chinese start buying up huge swathes of Sunderland and newcastle terraced streets, unlikely to have much effect. It has some impact obviously.

Edited August 22, 2013 by aSecureTenant

[interestrateripoff]

Though we giggle about it on here, GBP has a certain "safe haven" status. So its been a safe haven during the recent Euro turmoil and now during the emerging market meltdown.

I think that has something to do with the legal framework in the UK, we might be a banana republic on all other fronts but if your rich the UK has always protected wealth.

It would be interesting to see if large amounts are being deposited in RBS / Lloyds with people assuming as they have govt backing therefore the £85k limit is meaningless?

[Trampa501]

Is there anyone who accurately predicts currency movements?

[@contradevian]

EDIT: Here we go: (it's a long time ago now)

http://news.bbc.co.u...ess/7688308.stm

This guy who trades short sterling futures is blaming criminal behaviour manipulating UK interest rates. Its a bit beyond my pay grade to fully understand some of this. Maybe some of the professional traders on here might be able to shed some light.

@shortsterling

This is no longer a case for regulators, the BOE needs to step in. Foreign criminal disrupting Carney's forward guidance, UK suffering

Simple case of matching the 200 lot seller at 98 march 15. This C**T needs to be banned from the market forever, blatant + illegal

LIVE MARKET MANIPULATION IN SHRT STERLING time stamp 10.12am, 200 lot iceberg seller at 98 H5 match with u4 z5 bids et al, classic layering

[zugzwang]

Not a cat in hells chance of 1.40. Not seen those levels since dark days 2008, indeed I can see cable going quite a bit higher (though not immediately) indeed the bears are now targetting 1.4551 but there are a few intermediate support areas to be fought over.

Carney would have to do a QE infinity to get to 1.40. Not that it would do the economy much good. With Brent crude again threatening to go over $110 bbl we'd be in record sterling oil price territory.

Any sterling upside is being driven by hot money repatriation from Asia and Latin America IMHO.

[goldbug9999]

Is there anyone who accurately predicts currency movements?

No its not possible in any highly liquid market. Any accurate source of prediction in a market would result in the predictions becoming priced in as soon they were made, at which point they are no longer "predictions".

To put it another way: markets always subvert prediction by absorbing the prediction-triggered trading behavior into the core market behavior.

[Executive Sadman]

A lot of capital flooding in to buy property or lend to banks on the money markets who put the money in property?

One of the great untold stories is how this process (the process of recycled trade surpluses gets lent back to countries experiencing house price booms) contributes to demand for currency and generates its own speculative momentum on the back of this idea.

Capital flows should be regulated IMO - as it doesn't allow the corrective mechanism of currency levels to do its job of correcting trade flows.

The recent news on house prices may have been the starting gun.

Speculative though can leave as quickly as it enters. Pound strength or weakness, it doesnt make the yield any more attractive on UK property. Most longer term investors must see that real value cannot be found in the UK property market until yields are globally competitive with other asset types. Given rates are rising in the developing world, and other asset values will have to depriciate to reflect this, UK property looks even more overpriced from a value standpoint.

[Killer Bunny]

Not a cat in hells chance of 1.40. Not seen those levels since dark days 2008, indeed I can see cable going quite a bit higher (though not immediately) indeed the bears are now targetting 1.4551 but there are a few intermediate support areas to be fought over.

Yeah sub 1.40 in due course (not weeks more months maybe couple of years).

£ v $ has been less that £ has been lusted after as $ had a temporary correction.

$ likely to continue multi year rally (started May 2011).

£ peaked January 2013 1.63. Downtrend since and 1.57 OR SO (before some idiot berates me for it going to 1.575 or 1.58) is likely new (lower) peak.

Nothing goes in straight line.

[Deckard]

Yeah sub 1.40 in due course (not weeks more months maybe couple of years).

£ v $ has been less that £ has been lusted after as $ had a temporary correction.

$ likely to continue multi year rally (started May 2011).

£ peaked January 2013 1.63. Downtrend since and 1.57 OR SO (before some idiot berates me for it going to 1.575 or 1.58) is likely new (lower) peak.

Nothing goes in straight line.

FWIW, I share your view FP

[The Masked Tulip]

I had assumed sterling and bond rates were both rising because of all the PR about the UK economy recovering - plus people assuming this would lead to rising IRs in the UK.

[@contradevian]

Yeah sub 1.40 in due course (not weeks more months maybe couple of years).

£ v $ has been less that £ has been lusted after as $ had a temporary correction.

$ likely to continue multi year rally (started May 2011).

£ peaked January 2013 1.63. Downtrend since and 1.57 OR SO (before some idiot berates me for it going to 1.575 or 1.58) is likely new (lower) peak.

Nothing goes in straight line.

You have got higher lows as well, so its more of a wedge pattern.

Incredible to think in 2007 cable was at $2.11

[Killer Bunny]

You have got higher lows as well, so its more of a wedge pattern.

Incredible to think in 2007 cable was at $2.11

Topping tail a week in Feb 13 and probably again this week. At 200 W MA and 50 < 200 W MAs

on verra

Edited August 22, 2013 by Killer Bunny

[zugzwang]

I had assumed sterling and bond rates were both rising because of all the PR about the UK economy recovering - plus people assuming this would lead to rising IRs in the UK.

If the UK were truly recovering that would make sense. Since it isn't then maybe not so much. Gilt yields can rise for a number of reasons. Inflation expectations. Risk perception. The behaviour of US treasuries. US treasury bonds are still considered the most secure in the world. If they're yielding 3.0% then gilts must be yielding 3.0+%.

Personally I expect to see a co-ordinated sell off - sterling, gilts and equities - as the Fed's synthetic taper gives way to the real thing. Carney can probably mitigate some of the downside with some more sterling QE but not without putting a bid under oil. Oil and gas prices should kick the crap out of Osborne's HPI folly this winter. Fingers crossed.

[Gigantic Purple Slug]

If the UK were truly recovering that would make sense. Since it isn't then maybe not so much. Gilt yields can rise for a number of reasons. Inflation expectations. Risk perception. The behaviour of US treasuries. US treasury bonds are still considered the most secure in the world. If they're yielding 3.0% then gilts must be yielding 3.0+%.

Personally I expect to see a co-ordinated sell off - sterling, gilts and equities - as the Fed's synthetic taper gives way to the real thing. Carney can probably mitigate some of the downside with some more sterling QE but not without putting a bid under oil. Oil and gas prices should kick the crap out of Osborne's HPI folly this winter. Fingers crossed.

So the big question for me is when to get out of equities and into something else and what that should be.

[The Masked Tulip]

So the big question for me is when to get out of equities and into something else and what that should be.

Or just buy loads of fuel suppliers like British Gas?

[zugzwang]

So the big question for me is when to get out of equities and into something else and what that should be.

I've been in cash more or less since we hit 6600 (my Jan 1st target) and wanted to be more bearish but felt it too risky with all the QE flying around. I think the opportunity is at hand now and may opt for a nibble at an ETFX super short in September when I re-balance my portfolio.

[zugzwang]

Or just buy loads of fuel suppliers like British Gas?

I used to own a few BP shares but they never did much even after Katrina. These days I don't trade individual stocks because of the risk. ETF then? The problem with oil tracker ETFs is that they don't track the price of oil very well! The spot price of crude is extraordinarily volatile thanks to the big boys and govt hands. Impossible for a tracker to keep up, the cumulative error makes them not worthwhile. Far better to invest in a global energy fund that contains a lot of oil and gas related stocks. I now have some money in Investec Global Energy as a semi-defensive play. In 2008 we saw those massive spikes in oil and gas as cash was run off the housing bubble by the likes of Goldmans and JP Morgan. I hope to see that pattern repeated to a degree as QE is withdrawn.

[Sir Harold m]

I had assumed sterling and bond rates were both rising because of all the PR about the UK economy recovering - plus people assuming this would lead to rising IRs in the UK.

I don't get why if people are rushing to Gbp then why are yields going up ? Rising yields indicate the markets expectation of inflation which is the exact opposite of an sort existing currency .

If people are buying Gbp assets then yields should be falling as this reflects demand for Gbp paper .

The only exception is that somebody is liquidating both foreign currency assets and long term paper on order to hold cash . Why ?