Pound Is Tanking Yet Again

[BuyingBear]

Those Fed rate hikes and our cuts and inaction is really starting to set in, despite the fact the US has record trade deficits approaching 7% of GDP this year, in those terms the USD should be falling!

[FTBagain]

It has 1.5 cents in the last week and a half, hardly tanking it, but of course that could change!

What it does suggest is that the markets may be coming around to the idea the the £ / $ differential is just not good enough. UK IR may yet have to start tracking the $ rates up to defend the pound.

I wonder when the press will notice our currency heading towards the 'worthless' bracket.

[FTBagain]

My target is $1.70 before Year-end...

And I hope teh support there holds: chart

Why?

And if it does not?

[planit]

Correction

now 1.728

I assume this is because of the US inflation data.

[the_duke_of_hazzard]

Correction

now 1.728

I assume this is because of the US inflation data.

Won't this make the MPC more likely to raise IR's?

[OnlyMe]

Timberrrrr.

Time to chuck out Gordon's drones in the BOE this could be the start of a very nasty run on the pound and most of it will have been self-imposed.

Has there ever been a time when we have been more realiant on imported goods and hence stability of the pound to maintain "low inflation", I can't think of one.

[pdg]

update 1.72615

I've been reading that this is counter-intuitive considering US deficit.

Dont particularly understand what is going on though

Probably way behind a previous thread here but I have a tenuous grasp on what happens when the pound goes up and down beyond a few generalisations. If anyone can be arsed a short precis would be appreciated.

[FTBagain]

It is not just the Pound that is taking a thumping European shares are down heavily as well.

Looks like the markets are taking a dim view of the US inflation data. Probably expecting interest rates to rise in response, particularly in the light of some hawkish remarks coming out of the Fed in the last day or so. Along the lines of "We may need to increase the rate of tightening."

In other words 0.5% hikes not 0.25%. That could trigger a global rate rise. Bad for business sales figures as all those over stretched consumers get hammered by high rates on their debts.

However, I think it is too early to say that this is a sustained run on the pound. A short term reaction, rather like the kneejerk reactions talked about on VP's pinned thread, is the more likely situation IMO, but it is fun to watch.

Only time will tell.

Edited November 16, 2005 by FTBagain

[ajh]

My target is $1.70 before Year-end...

And I hope teh support there holds: chart

But Buying Bear has a point when he talks about the US deficit.

I am (from Australia) gobsmacked by the lack of reaction to September's $66B. That was 5 Billion above the previous worst monthly number and also 5 Billion above the consensus estimate.

Yet the markets seemed to take it in their stride and write it off to hurricanes.

Also, what's your view on the Fed. announcement that they won't be publishing M3 and some related numbers once Bernanke takes over next March.

[OnlyMe]

FTBAgain,

In normal markets I'd tend to agree to a certain extent, in these super-heated, debt fuelled, liquidated beyond belief days there are players out there who collectively can do pretty much anything they like. They were used (and encouraged) to speculate on interest rates to drive them down, now the money is beginning to play it its own game. The chart says (to me at least) big falls, I think that is what will happen until there are significant enough moves made to shift the fundamentals away from the move.

Edited November 16, 2005 by OnlyMe

[BuyingBear]

Correction

now 1.728

I assume this is because of the US inflation data.

It's dropping today faster than you can say reichsmark. Given the comments from the fed recently we can expect to see an inverted yield curve, depends who calls their bluff first, they always say don't fight the Fed or they'll be nightmare of bond street.

Edited November 16, 2005 by BuyingBear

[BuyingBear]

However, I think it is too early to say that this is a sustained run on the pound. A short term reaction, rather like the kneejerk reactions talked about on VP's pinned thread, is the more likely situation IMO, but it is fun to watch.

Only time will tell.

I did post a year-on-year graph, that shows a pretty clear sustained trend over many months.

[Mr Tickle]

Given the comments from the fed recently

I've been away for a few days and must have missed this ..... what exactly have the fed said?

Mr T

[jimmy]

Its at a 12 month low now..

1.71970

[FTBagain]

OnlyMe and BuyingBear,

When I made my comment earlier I was thinking of a run on the pound as something that happened over a period of hours or days, certainly with in a week, so a cent in a day or 20 cents over a few months hardly adds up to a run by that definition. A strong trend certainly, but not a run.

However, since my last post I notice that the pound dropped sharply again at 14:00 GMT (when the US markets opened ??). Now 1.3 cents in a matter of 3 - 4 hours is starting to get into a 'run on the pound' scenario.

The big indicator would be the BoE moving to defend the pound and I do not think we are in that territory yet, but I bet the BoE is starting to take note behind closed doors.

As I said time will tell, and it appears to be telling indeed. in light of the up beat comments out of the bank today.

[OnlyMe]

FTBagain,

Yes, should clarify what I mean by "run", in these circumstances huge amounts of speuclative money from hedge funds and others hammering the £ day after day for weeks, with pullbacks (some maybe large), but nonetheless a continual attack until targets are hit or action is taken to prevent the attack continuing.

[BuyingBear]

OnlyMe and BuyingBear,

When I made my comment earlier I was thinking of a run on the pound as something that happened over a period of hours or days, certainly with in a week, so a cent in a day or 20 cents over a few months hardly adds up to a run by that definition. A strong trend certainly, but not a run.

However, since my last post I notice that the pound dropped sharply again at 14:00 GMT (when the US markets opened ??). Now 1.3 cents in a matter of 3 - 4 hours is starting to get into a 'run on the pound' scenario.

Our currency is on a sustained downward trend against an already weak currency with a whole lot of problems of its own, the YoY graphs shows it isn't about short term extrapolations, over the most of the past year our repo rate has been significantly higher than the Fed, so what happens at parity is anyone's guess. Bernanke was before the Senate yesterday and was really quite hawkish, especially when he said they would specifically target inflation, keeping it within set parameters like the BoE, that combined with the CPI news today has obviously scared the horses and further hikes are being priced in.

A drop of 1.5 cents within an hour is indeed noteworthy, usually traders are dealing in a few pips.

Edited November 16, 2005 by BuyingBear

[OnlyMe]

BuyingBear,

Major support levels have been breached - hence the size of the moves, as for "Helicopter" Bernanke - it might take a lot more than he thinks to fool teh market - even hiding the stats (M3) won't help as it will just convince people that something iffy is going on. Just because Greenspan got away with murder for years doesn't mean that the new incumbent will. It has only been fairly recently that mainstream press has exposed the CPI figures for what they really are and now people are feeling the real effects of devaluation even if it isn't in the figures.

[DEATH]

It's showing as £1 = $1.71645 now.

What amazes me is gold is up nearly $6 today, despite the dollar being up 1% against the pound and 0.5% against the euro. It has been like that for the last few days..... It doesn't make sense does it?

Since the 52 week high of $1.95510 the pound has lost over 12% against the dollar.

Singe the 52 week high of $1.367 the euro has lost over 14% against the dollar.

In this same period gold has gone up 15% in dollars.

The fiat money is slowly but surely becoming worthless!

[jimmy]

This webside has an interesting story about M3 (read today and yesterday's postings)

http://www.urbansurvival.com/week.htm

Don't be surprised about the FED not releasing M3 stats. They are acknowledging the fact that gov't has lost control of the money supply.

Found it quite a good read about US inflation too...

[BuyingBear]

It's showing as £1 = $1.71645 now.

What amazes me is gold is up nearly $6 today, despite the dollar being up 1% against the pound and 0.5% against the euro. It has been like that for the last few days..... It doesn't make sense does it?

Since the 52 week high of $1.95510 the pound has lost over 12% against the dollar.

Thank god we don't buy our oil in dollars, that wouldn't be good for CPI would it

[planit]

My target is $1.70 before Year-end...

And I hope teh support there holds: chart

Just when is your year end DrBubb?

Any new thoughts now?

[BayAreaBear]

It's showing as £1 = $1.71645 now.

What amazes me is gold is up nearly $6 today, despite the dollar being up 1% against the pound and 0.5% against the euro. It has been like that for the last few days..... It doesn't make sense does it?

Since the 52 week high of $1.95510 the pound has lost over 12% against the dollar.

Singe the 52 week high of $1.367 the euro has lost over 14% against the dollar.

In this same period gold has gone up 15% in dollars.

The fiat money is slowly but surely becoming worthless!

It does make sense if only the dollar and gold are money in a global sense. This is empircally true to the extent that central bank reserves globally are massively tilted towards gold and dollars. When gold and the dollar go up together (as they have for months) we are seeing a global increase in liquidity preference (a desire to have on hand greater cash balances compared to ones liabilities). Thus there is a flight from riskier assets, a natural credit contraction if you like. This is deflation but in the global fiat money world we occupy it is observed as inflation (tricky stuff I know).

[BuyingBear]

It does make sense if only the dollar and gold are money in a global sense. This is empircally true to the extent that central bank reserves globally are massively tilted towards gold and dollars. When gold and the dollar go up together (as they have for months) we are seeing a global increase in liquidity preference (a desire to have on hand greater cash balances compared to ones liabilities). Thus there is a flight from riskier assets, a natural credit contraction if you like. This is deflation but in the global fiat money world we occupy it is observed as inflation (tricky stuff I know).

That would imply a huge sell off on equities and the bond market, which hasn't happened, the opposite if anything looking YoY, maybe that's why the Fed will keep the M3 figures secret, to obfusticate their actions on the markets, if they hide all those repurchase agreements we wont know if the market is truly working efficiently or whether the Fed is providing new liquidity.

The problem with paper money is that you end up with too much off the stuff, these days not even all the trees in the world is a limit when you can credit a balance on a computer.

[davep24]

on a good point, a weaker £ means that our manufacturing industries can compete in the export market.

oh, sorry forgot we dont have any manufacturing industries anymore thanks to the government