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MrFlibble

7 Reasons To Sell The Pound

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http://pragcap.com/7-reasons-to-sell-the-pound

UBS says the British Pound could decline to $1.35 by year-end. In a recent strategy note they listed 7 reasons why the Pound could decline for the remainder of the year:

1) the pound has rallied because Bank of England Monetary Policy Committee member Andrew Sentance voted to raise interest rates. But the rest of the MPC seems unlikely to join him.

2) the pound has also rallied recently because of the new government’s Budget announcement.

3) the scale of budget cuts envisaged over the next four years – on average the UK fiscal deficit will be reduced by 2% of GDP each year – presents risks to growth.

4) exports can’t be relied upon to take up the slack. Britain’s main trading partner is the Eurozone, not resilient emerging markets. Despite sterling’s weakness over the last two years, the UK trade balance has not improved significantly as the Eurozone has also weakened.

5) the MPC remains willing to resume quantitative easing if the economy weakens. Though the BOE stopped purchasing Gilts in February, its policy setting committee has stressed that quantitative easing has been paused rather than being terminated. Thus if fiscal tightening later in the year does cause economic growth to falter, the MPC is likely to respond with more Gilt purchases if it feels it will miss its inflation target in two year’s time.

6) tighter fiscal and looser monetary policies can result in a much weaker pound as sterling’s performance after the 1981 austerity budget shows. In the early 1980s the pound fell for several years against the dollar and the German mark after the UK government cut the budget deficit and the Bank of England responded by cutting interest rates from 14% to 12%.

7) other major currencies have also experienced similar prolonged weakness when the authorities have tightened fiscal policy and loosened monetary policy during times of economic weakness.

These points make a lot of sense, but I for one would like to see GBP stage some sort of rally up to 1.65/1.70 USD before I go fully short again. If 1.60 is the best we can manage then it is a poor show really. Still, beggars cannot be choosers...

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I dunno they see its gone to $1.57 already and thus think hmm maybe we cna get away with some more printing?

I mean we printed before and it went to $1.35, if we print again it'll come back especially when those yanks print again.

And when we do print the people will blame high prices of stuff on greedy supermarkets and such like. And we'll have £5 loaves of bread.

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Guest Noodle
4) exports can’t be relied upon to take up the slack. Britain’s main trading partner is the Eurozone, not resilient emerging markets.

Hmmmm . . . I wonder why that is?

:rolleyes:

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I dunno they see its gone to $1.57 already and thus think hmm maybe we cna get away with some more printing?

I mean we printed before and it went to $1.35, if we print again it'll come back especially when those yanks print again.

And when we do print the people will blame high prices of stuff on greedy supermarkets and such like. And we'll have £5 loaves of bread.

actually thats completely incorrect timing wise, it fell to 1.35 before they started printing, when they announced and carried out QE it recovered to 1.70 after they stopped again it fell back to 1.45, it is now back at 1.60

Edited by Tamara De Lempicka

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Yes, low inflation (by the standard of what is to come) .........some people even had offshore savings a/c that didn't pay tax either!

Mike

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actually thats completely incorrect timing wise, it fell to 1.35 before they started printing, when they announced and carried out QE it recovered to 1.70 after they stopped again it fell back to 1.45, it is now back at 1.60

UBS are the most bearish on the pound. They have a forecast for dollar parity and 0.8 euros!!!

Edited: ...on implementation of budget cuts.

Edited by AvidFan

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The other thing not well known is that we are buying US bonds for the Fed, the FED is buying UK debt as well......................both will come to an end shorty.

Mike

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1 GBP =

1.58501

Easing back from 1.60 but not by much.

I hope UBS are right as I have a sleep-killing short on Sterling! PNP Paribas said 1.30's for later this year also. Gross likened our debt to something laying on a bed of nitroglycerine. House Market is just turning south. All adds up IMO.

The fundamentals for Sterling are all bad its just a case of wether the US is in worse shape--which I doubt. GDP 2.4%, huge resources, younger population, more Asian connected (especially the power house CA which should come out of its crash mode in 3 years or so (Germano-Puritan work ethic)...

Where next? Sterling may have seen the top although I cannot see a huge drop until we get the first whole number down for houses.

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UBS are the most bearish on the pound. They have a forecast for dollar parity and 0.8 euros!!!

Edited: ...on implementation of budget cuts.

so not quite as bearish as me over the next few years, and UBS have analysts so 1 to 1 is a strange number to pick because as i highlighted the important value is 1.30, if it went to parity its clearly breached 1.30 so it would pretty much have to go to .7 so i dont really see why they have chosen parity.

But first things first it needs to finish its counter rally first and that could happen anywhere between here and 1.90 so theres still plenty of time before it boogered probably

Edited by Tamara De Lempicka

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so not quite as bearish as me over the next few years, and UBS have analysts so 1 to 1 is a strange number to pick because as i highlighted the important value is 1.30, if it went to parity its clearly breached 1.30 so it would pretty much have to go to .7 so i dont really see why they have chosen parity

Mirror of 1985?

They didn't actually say 0.8 euros. They just said dollar parity and "below parity" with the euro. Since PPP "fair value" / long-run average EUR:USD is 1.18, in my head I'm simply calculating 1/1.1.18.

Edited: I suppose all of this depends on whether you think it's ina downwards channel or that it's bottoming.

My belief is that it bottomed against the dollar in 1985 and is now in an uptrend overall.

Edited by AvidFan

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Mirror of 1985?

They didn't actually say 0.8 euros. They just said dollar parity and "below parity" with the euro. Since PPP "fair value" / long-run average EUR:USD is 1.18, in my head I'm simply calculating 1/1.1.18.

Edited: I suppose all of this depends on whether you think it's ina downwards channel or that it's bottoming.

My belief is that it bottomed against the dollar in 1985 and is now in an uptrend overall.

whereas i think its in a channel downwards with tops 80 & 07 and bottom 85 with the entire move since 85, correctional just unwinding the selling pressure on the early 80s impulsive selloff

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If you believe in another big crash coming later this year then it surely makes sense to sell Sterling and buy into Dollars as in a DOW collapse does not the US Buck become a place of refuge?

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If you believe in another big crash coming later this year then it surely makes sense to sell Sterling and buy into Dollars as in a DOW collapse does not the US Buck become a place of refuge?

No you should buy sterling through patriotism to help queen and country, its the right thing to do for hard working families, Britannia rules the waves etc etc

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No you should buy sterling through patriotism to help queen and country, its the right thing to do for hard working families, Britannia rules the waves etc etc

Precisely. "Give thanks through saving" as they used to say after the war. Or "I've got another bond to buy" if you were in the states at the time.

Edited by AvidFan

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No you should buy sterling through patriotism to help queen and country, its the right thing to do for hard working families, Britannia rules the waves etc etc

Indeed ;) We must all spare a thought for the hard working families of Great Britain - the debt ridden must be pampered and bowed down to. It would be very selfish for any one of us to remove money from the UK right now. Instead we must place trust in the BoE and enjoy the fruits of their wisdom whilst watching inflation eat away our savings.

We are all in this together remember :unsure:

Edited by MrFlibble

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Indeed ;) We must all spare a thought for the hard working families of Great Britain - the debt ridden must be pampered and bowed down to. It would be very selfish for any one of us to remove money from the UK right now. Instead we must place trust in the BoE and enjoy the fruits of their wisdom whilst watching inflation eat away our savings.

We are all in this together remember :unsure:

I see where you're coming from. Okay - I have to agree that the prudent bailing out the feckless as a product of holding sterling is a crying shame. Still, we've £800bn in foreign lending to keep spinning every year and a few hundred billion in new bonds to issue too. I don't suppose my little pile will make much difference.

Edited by AvidFan

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I see where you're coming from. Okay - I have to agree that the prudent bailing out the feckless as a product of holding sterling is a crying shame. Still, we've £800bn in foreign lending to keep spinning every year and a few hundred billion in new bonds to issue too. I don't suppose my little pile will make much difference.

Every little helps ;)

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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