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Cameron Economy Set To Take A Pounding As Traders Turn Bearish

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http://www.bloomberg.com/news/2010-08-23/cameron-economy-set-to-take-a-pounding-as-traders-turn-bearish.html

The British pound’s biggest rally in 14 months is in jeopardy as Prime Minister David Cameron’s budget cuts begin to curb economic growth.

Foreign-exchange forecasters are the most pessimistic on the pound since May 2009, when Standard & Poor’s said the U.K. was at risk of losing its AAA credit rating, according to data compiled by Bloomberg. Bears in a Bloomberg survey of strategists outnumber bulls 29 to 12, while TD Securities in Toronto, the most-accurate forecaster in the six quarters ended June 30, has the lowest estimate, predicting sterling will depreciate 15 percent versus the dollar by year-end.

“The story has changed,” said Richard Benson, an executive director at Millennium Asset Management in London who oversees $14 billion and correctly predicted in the first half of 2009 the pound would gain versus the euro. “The prospects for growth look quite soft and fiscal retrenchment is about to be undertaken,” said Benson, who is betting against sterling as the U.K. expansion lags behind Germany.

Investors drove the pound as much as 11.8 percent higher against the euro from its low this year on March 1 on speculation Cameron’s austerity measures would shrink the nation’s 11 percent deficit and preserve its top debt rating. It’s starting to retreat as the planned cuts risk undermining the recovery.

Trimming Forecasts

The Bank of England lowered its 2012 growth forecast on Aug. 11, to 3 percent from 3.6 percent, citing “tight credit conditions” and the budget program. The U.K. will probably expand 1.2 percent this year, the median estimate of 24 economists surveyed by Bloomberg showed. German gross domestic product may increase 2 percent this year, with the U.S. rising 3 percent, separate surveys show.

Gains in London house prices in the first-half of 2010 were wiped out this month as the market weakened, Rightmove Plc, operator of the U.K.’s biggest property website, said on Aug. 16. Consumer confidence dropped in July for a third month, data from Nationwide Building Society showed on Aug. 11.

Benson said sterling will weaken more than 8 percent against the euro by year-end, from 81.83 pence last week. It rose 0.2 percent 81.69 pence and to $1.5564 from $1.5534 as of 12:42 p.m. in Tokyo.

“It’s a turning point for the pound,” said Ian Stannard, a London-based senior currency strategist at BNP Paribas SA, the third-most-bearish of 34 forecasts for the pound against the dollar compiled by Bloomberg as of Aug. 20. “The data has peaked and it’s set to deteriorate.”

The pound fell 12 percent from the start of the year to a low of $1.4231 on May 20 on concern former Prime Minister Gordon Brown’s Labour Party would fail to tackle a budget deficit that had reached 12.6 percent of the economy.

Cameron Takes Over

Cameron’s Conservative Party ended 13 years of Labour rule in the May 6 election and formed a coalition government with Nick Clegg’s Liberal Democrats, promising cuts to tackle the shortfall. Sterling jumped 7.9 percent against the dollar in the two months through July.

Governments across Europe are attacking deficits after the region’s debt crisis sent bond yields in Greece, Portugal and Spain to the highest relative to German bunds since the euro was introduced in 1999 and prompted credit downgrades by S&P, Fitch Ratings and Moody’s Investors Service. S&P reiterated the “negative” outlook for the U.K. on July 12, saying its projections for the economy were less optimistic than those Chancellor of the Exchequer George Osborne presented in his emergency budget on June 22.

Osborne, 39, the youngest chancellor since 1886, pledged to almost erase the deficit by 2015 via spending cuts worth 30 billion pounds ($47 billion) annually and measures including a public-sector wage freeze, firings and tax increases.

Gilts Rise

Gilts climbed that day as the Debt Management Office reduced the amounts of bonds to be sold in the fiscal year through March to 165 billion pounds from 185.2 billion pounds. U.K. bonds have returned 5.74 percent since May 6, compared with 3.95 percent on average for government bonds globally, according to Bank of America Merrill Lynch index data.

“The actions we took in the budget have removed the biggest downside risk to the recovery, a loss of confidence and a sharp rise in market interest rates,” Osborne said in a speech at Bloomberg’s London offices on Aug. 17. “Britain now has a credible plan to deal with our record deficit. We must stick by it.”

Strategists who boosted fourth-quarter predictions for the pound to as high as $1.67 in January now see the currency declining to $1.51 by year-end, according to the Bloomberg survey’s median forecast.

Pound Forecasts

TD Securities predicts sterling will end the year at $1.32. BNP Paribas, based in Paris, estimates the pound may slide to $1.40, while Zurich-based UBS AG, ranked by Euromoney Institutional Investor Plc as the world’s second-biggest foreign-exchange trader, forecasts a drop to $1.35.

Against the euro, the pound will likely end the year at 81 pence, based on the median estimate of 27 economists and strategists. As recently as April they forecast 87 pence.

“The appreciation we expected several months ago has now occurred and most likely overshot,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, who sees the pound at $1.53 by Dec. 31. “The pound faces several ongoing hurdles, including the outlook for inflation and the Bank of England.”

The pound is weakening even as inflation shows few signs of slowing. The currency fell 0.5 percent on Aug. 17 even though the Office for National Statistics said U.K. consumer-prices increased 3.1 percent in July from a year earlier, above the government’s 3 percent limit.

Futures Traders

Futures traders have reversed bets that the pound will gain against the U.S. dollar, data from the Washington-based Commodity Futures Trading Commission showed on Aug. 20.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with bets on an advance, so-called net shorts, was 4,431 on Aug. 17, compared with net longs of 5,021 a week earlier. Net shorts were as much as 76,745 in May.

“We still find sterling attractive,” said Thanos Papasavvas, who helps invest about $5 billion as head of currencies at Investec Asset Management Ltd. in London. “It’s more to do with the U.S., which is behind the curve on the fiscal adjustments. Economic reports coming out of the U.S. have been disappointing, whereas data from the U.K. has been better than expected.”

The pound will trade between $1.65 and $1.70 by year-end, Papasavvas said.

‘Cautiously Optimistic’

Osborne said in his speech on Aug. 17 that economic data pointed to a “gradual recovery.”

“We can start to be cautiously optimistic about the economic situation,” he said.

Bank of England Governor Mervyn King may resist further gains in the pound to promote exports and industries including tourism that have benefited from a 24 percent drop in sterling on a correlation-weighted basis since the start of 2007.

Retail sales in central London grew at the fastest rate since 2006 in the five weeks to July 3 as visitors to the U.K. took advantage of the weaker currency, the British Retail Consortium and accounting firm KPMG LLP said on July 19.

“The governor has been arguing the case for an export-led recovery,” said Robin Marshall, a director of fixed income at Smith & Williamson Investment Management in London, which oversees $20 billion. “A much stronger exchange rate would not be very welcome. He would attempt to talk it back down if we did get back toward the $1.70 level.”

A weaker pound may not be enough to give an additional kick to the economy as Cameron’s austerity program slows the recovery, said Brian Kim, a currency strategist at UBS in Stamford, Connecticut.

“The fiscal side in the U.K. is going to hamper growth,” Kim said in an interview. “We could see more sterling weakness in the second half of the year.”

Whatever action the UK takes Sterling is looking very iffy in the short to medium term.

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http://www.bloomberg.com/news/2010-08-23/cameron-economy-set-to-take-a-pounding-as-traders-turn-bearish.html

Whatever action the UK takes Sterling is looking very iffy in the short to medium term.

The pound is currently up on the day against just about everything and close to its 12 month high against the Euro. Picking medium to short term currency movements is a mug's game anyway. Before the pound appreciated against the dollar in recent months the consensus was it was heading for a fall. The same arguments quoted in the article about export lead recovery and talking down the currency could equally well be applied to the Euro, dollar and yen. The Americans want to depreciate relative to the renminbi, the German recovery is predicated on export growth and the Japanese have started talking about intervening as the Yen is supposed to be overpriced.

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Sterling appears too be the star of a magic show where it seems to hang in middle air, rising gently, with no support.

But there is support--its our still intact housing market which is feeding our main industry--the Shylocks, the Banksters and a whole gamut of non-productive bacteria.

IMO, the only reason the pound is still doing well is because we have yet to see any REPORTED drops in house prices that are significant (whole number drops not immeasurable -0.1% stuff).

Pound up slightly today:

$ = 1.55724

Euro = 1.22775

Edited by Realistbear

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So £ at year end forecasts:

TD Securities $1.32

UBS AG $1.35

BNP Paribas $1.40

Bloomberg Survey Median $1.51

Bank of Nova Scotia $1.53

Investec Asset Management Ltd $1.65 - $1.70

Back in January Goldman forecast that the £ could be at $1.85 within 3 months!!

I think the only safe thing to conclude is that none of them have a bl00dy clue.

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Exchange rates only give the relative values between two currencies.

The British economy may well be f*cked but then again so is the Eurozone as a whole and the US.

Given that everyone is wanting to crash their currencies it surely would be a good time to do some printy printy with no side effects :P

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Sterling appears too be the star of a magic show where it seems to hang in middle air, rising gently, with no support.

Surely rates are just comparisons between markets. The pound could be in all heaps of trouble, but so long as the Euro + Dollar are in a worse state then it'll rise.

EDIT: I didn't see Timak's reply ! (great minds and all that)

Edited by exiges

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Don't forget we are acting as an agent for the FED, buy the Feds debt.....For the FED. AS a result i am sure they buying a good chunk of our debts as well. The happy deal will end shorty as will:-

QE Run out in the 4th quater

House prices side

Balance of payments falls on the back of reduction of oil/gas production from the Northsea.

Sadly the fall in £ will spike inflation even as house prices deflate ................death sprill

Mike

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Sterling appears too be the star of a magic show where it seems to hang in middle air, rising gently, with no support.

But there is support--its our still intact housing market which is feeding our main industry--the Shylocks, the Banksters and a whole gamut of non-productive bacteria.

IMO, the only reason the pound is still doing well is because we have yet to see any REPORTED drops in house prices that are significant (whole number drops not immeasurable -0.1% stuff).

Pound up slightly today:

$ = 1.55724

Euro = 1.22775

The pound only rose in the last few months because of a change of Govt and the breathing space it provided. Now we all know that the fiscal aqueeze needed is so sharp we cannot avoid further tightening, the markets are about to price that into the pound again. This time it will be weaker, not because a spendthrift 'Brown Darling' with no brake is in power, but because the brake has had to put on very firmly. Long term prospects much better though. We need a 20% devaluation and a bit more inflation to cope with our debts. The policy is showing itself to be a controlled inflation, to pay away the debt. It cannot be paid back can it?!!! What else could you do that would work without collapsing the economy?

Nothing ...I thought so. Interest rate rises and an HPC will be a natural consequence. The lower the pound the more of an export led recovery you will see in 2012.

Edited by plummet expert

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So £ at year end forecasts:

TD Securities $1.32

UBS AG $1.35

BNP Paribas $1.40

Bloomberg Survey Median $1.51

Bank of Nova Scotia $1.53

Investec Asset Management Ltd $1.65 - $1.70

Back in January Goldman forecast that the £ could be at $1.85 within 3 months!!

I think the only safe thing to conclude is that none of them have a bl00dy clue.

Indeed, in fact basic market dynamics preclude anyone from being right consistently because correct projections would quickly become priced in and therefore self canceling.

My personal feeling is that £ is now about as high as its going to go so now is a good time to diversify out. Having said that its difficult to know what to diversify out to - euro I feel is still a ticking bomb and the $ is an outright gamble on fed QE yes/no policy. gilts don't have the true default risks priced in and so are IMO over valued, stockmarkets have limited upside and some small but significant probability of a crash.

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Indeed, in fact basic market dynamics preclude anyone from being right consistently because correct projections would quickly become priced in and therefore self canceling.

My personal feeling is that £ is now about as high as its going to go so now is a good time to diversify out. Having said that its difficult to know what to diversify out to - euro I feel is still a ticking bomb and the $ is an outright gamble on fed QE yes/no policy. gilts don't have the true default risks priced in and so are IMO over valued, stockmarkets have limited upside and some small but significant probability of a crash.

I'm thinking the same thing, 'have sterling and don't really want it there. I'm thinking silver via an ETF holding physical. What do you think? Commodities are likely to at least rise with inflation, and the pound is now at least stronger than it was so timing might be Ok. My main concern is a stock market crash based on a double dip that could drag commodity prices down in the short term.

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Exchange rates only give the relative values between two currencies.

The British economy may well be f*cked but then again so is the Eurozone as a whole and the US.

Given that everyone is wanting to crash their currencies it surely would be a good time to do some printy printy with no side effects :P

+1

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"My personal feeling is that £ is now about as high as its going to go so now is a good time to diversify out. Having said that its difficult to know what to diversify out to - euro I feel is still a ticking bomb and the $ is an outright gamble on fed QE yes/no policy. gilts don't have the true default risks priced in and so are IMO over valued, stockmarkets have limited upside and some small but significant probability of a crash."

My thoughts exactly

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Got to add - since the shorts all came off the pound the other week and now all of a sudden they've just turned uber bearish again - they're just trying to knock it down to get in. Get ready for a huge bounce. A nice 20%+ "profit" for doing f-all should make the city boys' day.

Edited by AvidFan

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Got to add - since the shorts all came off the pound the other week and now all of a sudden they've just turned uber bearish again - they're just trying to knock it down to get in. Get ready for a huge bounce. A nice 20%+ "profit" for doing f-all should make the city boys' day.

20% bounce in Sterling? Backed by what, a falling housing market?

They've probably turned bearish again as Sterling failed at the 1.60 level on the Dollar. If we had a half credible economy we would have broke that level and been heading up to 1.70 by now.

We may still break 1.60 and if we do I for one will be shorting Sterling again.

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20% bounce in Sterling? Backed by what, a falling housing market?

They've probably turned bearish again as Sterling failed at the 1.60 level on the Dollar. If we had a half credible economy we would have broke that level and been heading up to 1.70 by now.

We may still break 1.60 and if we do I for one will be shorting Sterling again.

I've got nothing riding on it - whereas you might have. I can understand people's determination to see sterling fall. I'[m not saying it'll stay overvalued - just - as a matter of pure entertainment - watch the miracle of the rational, free market over the next few months. $1.85 - I'm telling you.

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Don't forget we are acting as an agent for the FED, buy the Feds debt.....For the FED. AS a result i am sure they buying a good chunk of our debts as well. The happy deal will end shorty as will:-

QE Run out in the 4th quater

House prices side

Balance of payments falls on the back of reduction of oil/gas production from the Northsea.

Sadly the fall in £ will spike inflation even as house prices deflate ................death sprill

Mike

...

Edited by Alan B'Stard MP

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I've got nothing riding on it - whereas you might have. I can understand people's determination to see sterling fall. I'[m not saying it'll stay overvalued - just - as a matter of pure entertainment - watch the miracle of the rational, free market over the next few months. $1.85 - I'm telling you.

i dont have any interest in sterling but id tend to be in your camp, maybe not 1.85 but i see very likely 175 and certainly above the July 09 high of 1.70 , im sure its rally hasnt finished and it will go through 1.60, as for the news or non news supposedly moving it, it really doesnt matter, if something is in an interim bull market it will go up, news will simply be ignored, the same as bullish news is ignored in a bear market.

Of course once it gets there im also pretty sure it will go below parity to about 70 cents, but we tend to differ our opinion there :D

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I've got nothing riding on it - whereas you might have. I can understand people's determination to see sterling fall. I'[m not saying it'll stay overvalued - just - as a matter of pure entertainment - watch the miracle of the rational, free market over the next few months. $1.85 - I'm telling you.

The only way I see this happening is if the Forex boyz push Sterling out of Merv's comfort zone. They have a nasty habit of doing such things when they know the other party will push in the opposite direction. The battle with the SNB springs to mind where the SNB have blown something like $4bn trying to keep their currency down.

Merv will shit bricks if Sterling hits $1.85 :lol:

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i dont have any interest in sterling but id tend to be in your camp, maybe not 1.85 but i see very likely 175 and certainly above the July 09 high of 1.70 , im sure its rally hasnt finished and it will go through 1.60, as for the news or non news supposedly moving it, it really doesnt matter, if something is in an interim bull market it will go up, news will simply be ignored, the same as bullish news is ignored in a bear market.

Of course once it gets there im also pretty sure it will go below parity to about 70 cents, but we tend to differ our opinion there :D

As, My. Pennywise - thank heaven you turned up. I was fighting a losing battle there until Mr. B4stard tackled Mr. Mega. I'd have lost to RB, I'm sure of it.

As I said - I think the pound hovers in the 1.25-1.28 euro area for a month or two and the end run for USDX is 0.76, i.e. the euro as high as 1.43 USD. I think we (£) can get to $1.85 once or twice.

Otherwise - yes - some time at $1.70-something and then down again.

Can't see the pound less than $1.3 - $1.4 ever, TBH - all IMHO of course.

Not saying much if the dollar falls as far as I think it will in the long term...

Edited by AvidFan

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Come on, what did it say you B'Stard?

I suggested Mega was an aspiring idiot-savant who had only reached half his goal.

I urged him not to trip in the home straight and only achieve 50% of the dream.

It was wrong of me.

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I suggested Mega was an aspiring idiot-savant who had only reached half his goal.

I urged him not to trip in the home straight and only achieve 50% of the dream.

It was wrong of me.

Can't you just treat your avatar ar your "character" and run with it?

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Can't you just treat your avatar ar your "character" and run with it?

Character? That was me on my wedding day. An MP at his peak. Notice the tasteful editing to remove the back of my secretary's head?

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  • 259 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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