Jump to content
House Price Crash Forum
Sign in to follow this  
crashmonitor

Pound Trade Weighted Index

Recommended Posts

Well I had a devil of a job to find this link. Yet until recently it was quoted on the main news as a matter of course, I suppose with embittered memories of the sterling revaluations in the 60s and 70s.

Recovering well recently with UK leading the pack for GDP growth in the West.

The pound/dollar exchange has gone from $1.22 five years ago to new five year highs of $1.64 recently.

http://en.unciatrends.com/british-pound-trade-weighted-index/

Edited by crashmonitor

Share this post


Link to post
Share on other sites

I do wonder if the pound is trying to break out of a long trending range:

File Share Linky - Pound/Dollar Escape?

$85 billion a month in QE and a $1 trillion a year overspend by the US government could be seen as an induced credit cycle. In credit cycles the money is squeezed out into the UK and across the world. The dollar suffers as a result.

It will be interesting to see if the US dollar index declines in coming months and the pound reaches new dollar highs. The reason for my own Avatar is that I believe a recovery of the pound is long overdue, although I've been saying so since about 2009.

You can take a slightly different rising wedge pattern from the graph and you end up with this:

File Share Linky - Pound/Dollar already escaped?

Notice the hesitancy of GBP:USD around the 1.60 mark indicating it was a key trading level. Now at 1.64, it's already escaped out of the wedge pattern.

Edited by AvidFan

Share this post


Link to post
Share on other sites

I do wonder if the pound is trying to break out of a long trending range:

File Share Linky - Pound/Dollar Escape?

$85 billion a month in QE and a $1 trillion a year overspend by the US government could be seen as an induced credit cycle. In credit cycles the money is squeezed out into the UK and across the world. The dollar suffers as a result.

It will be interesting to see if the US dollar index declines in coming months and the pound reaches new dollar highs. The reason for my own Avatar is that I believe a recovery of the pound is long overdue, although I've been saying so since about 2009.

You can take a slightly different rising wedge pattern from the graph and you end up with this:

File Share Linky - Pound/Dollar already escaped?

Notice the hesitancy of GBP:USD around the 1.60 mark indicating it was a key trading level. Now at 1.64, it's already escaped out of the wedge pattern.

I can recall you saying it was headed to 1.65 (I think I'm right) around 3 years ago.

Clever bunny.

Edit: Sterling rates are on the BoE website. I dare say they're on FRED somewhere too but haven't looked.

http://bankofengland.co.uk/boeapps/iadb/index.asp?Travel=NIxIRx&levels=2&XNotes=Y&A3951XNode3951.x=6&A3951XNode3951.y=7&Nodes=&SectionRequired=I&HideNums=-1&ExtraInfo=true#BM

Edited by R K

Share this post


Link to post
Share on other sites

I can recall you saying it was headed to 1.65 (I think I'm right) around 3 years ago.

I'm way more optimistic than that now. I'm talking $2.10-$2.20 to the pound sometime in the next 2 years. Big currency-debasing overspend in the US knocking the dollar index to 65 and a UK back-end loaded government tightening of expenditure to get our deficit down from £110 billion a year. Lots of dollars and a lack of sterling = excellent exchange rate.

In the 1970s recession sterling recovered mid-cycle. Same happened in the 1990s recession. Sterling gets back to $2 briefly before the rest of the cycle plays out.

Edited by AvidFan

Share this post


Link to post
Share on other sites

Using GBP/USD instead of the Weighted Index since 2006 GBP v USD (x1000) tracks Halifax house prices.

Anyone might think our economy is only based on house prices. The currency certainly could be, now the government is underwriting mortgage losses for banks. In the future any house price falls must be bad for government finances and so sterling?

Share this post


Link to post
Share on other sites

Using GBP/USD instead of the Weighted Index since 2006 GBP v USD (x1000) tracks Halifax house prices.

Anyone might think our economy is only based on house prices. The currency certainly could be, now the government is underwriting mortgage losses for banks. In the future any house price falls must be bad for government finances and so sterling?

I tend to think it's more like houses are real assets so prices rise when sterling is being debased but with a lag of some years. In 2008 house prices peaked but sterling has been under immense pressure since. If we get a strong pound I think house prices will be under pressure. My own view of the UK now is strong sterling and falling house prices for the next year or two.

Share this post


Link to post
Share on other sites

Just to add to my hypothesis, here's a long-term graph of sterling versus the USD:

Linky of GBP versus USD from 1957

Note that during the huge double-dip recession of the 1970s sterling recovered to its pre-crisis levels of about $2.5. In 1993, sterling recovered to just over $2, right in the middle of the last housing crash and recession.

I might be a bit out with the 1974 date - it could be more like 1976. But the recovery is clearly visible.

Edited by AvidFan

Share this post


Link to post
Share on other sites

I'm way more optimistic than that now. I'm talking $2.10-$2.20 to the pound sometime in the next 2 years. Big currency-debasing overspend in the US knocking the dollar index to 65 and a UK back-end loaded government tightening of expenditure to get our deficit down from £110 billion a year. Lots of dollars and a lack of sterling = excellent exchange rate.

In the 1970s recession sterling recovered mid-cycle. Same happened in the 1990s recession. Sterling gets back to $2 briefly before the rest of the cycle plays out.

It's certainly a shame Jim (I'm hopeless) Rogers didn't bet his pot on his claim sterling was going to parity in 2009.

I'm more optimisitc for the USD actually, with their trade deficit improving. But yes, I don't understand the argument for sterling NOT bouncing off its long term trade weighted lows.

In any event, Carney's got his work cut out keeping sterling lower and inflation down, unless real wage rises start to kick in soon.......

Share this post


Link to post
Share on other sites

I tend to think it's more like houses are real assets so prices rise when sterling is being debased but with a lag of some years. In 2008 house prices peaked but sterling has been under immense pressure since. If we get a strong pound I think house prices will be under pressure. My own view of the UK now is strong sterling and falling house prices for the next year or two.

Doesn't money flow to countries having housing booms, which is partly why sterling has gone up this year because our house prices have increased?

From my limited knowledge I could only see your $2 if house prices keep rising. Using monthly figures in summer 2007 GBP/USD peaked at 2.03 in July and Halifax at 1.997 the following month.

Share this post


Link to post
Share on other sites

Doesn't money flow to countries having housing booms, which is partly why sterling has gone up this year because our house prices have increased?

From my limited knowledge I could only see your $2 if house prices keep rising. Using monthly figures in summer 2007 GBP/USD peaked at 2.03 in July and Halifax at 1.997 the following month.

See my earlier post:

Just to add to my hypothesis, here's a long-term graph of sterling versus the USD:

Linky of GBP versus USD from 1957

Note that during the huge double-dip recession of the 1970s sterling recovered to its pre-crisis levels of about $2.5. In 1993, sterling recovered to just over $2, right in the middle of the last housing crash and recession.

I might be a bit out with the 1974 date - it could be more like 1976. But the recovery is clearly visible.

Sterling recovered in 1993 even though the housing market crash was in full swing and lasted until 1995/1996. I think there is some correlation between currency and house prices but it's with a lag of some years.

Share this post


Link to post
Share on other sites

It's certainly a shame Jim (I'm hopeless) Rogers didn't bet his pot on his claim sterling was going to parity in 2009.

I'm more optimisitc for the USD actually, with their trade deficit improving. But yes, I don't understand the argument for sterling NOT bouncing off its long term trade weighted lows.

In any event, Carney's got his work cut out keeping sterling lower and inflation down, unless real wage rises start to kick in soon.......

Was it Jim Rodgers who told everyone to buy Iceland before it went up poop creek?

Share this post


Link to post
Share on other sites

See my earlier post:

Sterling recovered in 1993 even though the housing market crash was in full swing and lasted until 1995/1996. I think there is some correlation between currency and house prices but it's with a lag of some years.

I'd posted mine before seeing your next one.

Maybe I am looking at a too short a time frame then. I hope you are right because house prices falling and sterling rising would give me more choice. At the moment not owning property I see sterling rising as an escape tunnel to flee abroad. What I don't want is HPI and sterling falling, then it would be like the escape roof tunnel collapsing.

Share this post


Link to post
Share on other sites

In any case, there's been a huge breakout in sterling versus the USD over the past 30 or so years. There's a strong downtrend that goes back to the turn of the last century as the UK has declined but since it hit $1 in about 1985 it's been trading sideways in a range between $1.45 and $2.10. Anyone who thinks the pound is going to parity (or lower) isn't seeing the bigger trend:

Linky - pound versus dollar since 1957

You'll have to believe me that there's a point on the graph further back in history which makes the lower sloping line valid.

The idea that the pound has broken out sideways against the dollar fits with the fact that most central banks hold around 4-5% in sterling these days due to a change in the long term outlook for the UK. In around 2007, the papers ran with the headline "Sterling becomes the Queen of currencies" with the US dollar still king.

Edited by AvidFan

Share this post


Link to post
Share on other sites

Was it Jim Rodgers who told everyone to buy Iceland before it went up poop creek?

It was.

I think he just got lucky working for Soros for a while.

Share this post


Link to post
Share on other sites

In any case, there's been a huge breakout in sterling versus the USD over the past 30 or so years. There's a strong downtrend that goes back to the turn of the last century as the UK has declined but since it hit $1 in about 1985 it's been trading sideways in a range between $1.45 and $2.10. Anyone who thinks the pound is going to parity (or lower) isn't seeing the bigger trend:

Linky - pound versus dollar since 1957

You'll have to believe me that there's a point on the graph further back in history which makes the lower sloping line valid.

The idea that the pound has broken out sideways against the dollar fits with the fact that most central banks hold around 4-5% in sterling these days due to a change in the long term outlook for the UK. In around 2007, the papers ran with the headline "Sterling becomes the Queen of currencies" with the US dollar still king.

I know someone who has traded currencies for banks and when he changed jobs in the 80's, 90's and 00's he said sterling was always 1.60 USD. He thinks that's it's level and it may deviate but always comes back to it.

Share this post


Link to post
Share on other sites

...and don't be tempted at the moment to hold gold as a hedge against HPI. There's a very long trend forming a right shoulder on the HPI versus gold graph:

Linky - House prices versus gold

The right shoulder is always at or above the level of the left shoulder. We could get 350 ounces per house, i.e. 150K houses, the pound at $1.5 and gold at $750. This will temporarily upset anyone who's holding gold as a HPI hedge but there you go. I'm not saying the major trend still isn't down - it will be. I'm sure we'll see UK house prices worth 50 ounces of gold by 2020 but it'll be a long drawn-out process.

Part of the spike up in the gold price graph to form the right shoulder will be strong sterling - say gold at $1000, Sterling at $2.10 and UK house prices back down to 150K.

Share this post


Link to post
Share on other sites

...and don't be tempted at the moment to hold gold as a hedge against HPI. There's a very long trend forming a right shoulder on the HPI versus gold graph:

Linky - House prices versus gold

The right shoulder is always at or above the level of the left shoulder. We could get 350 ounces per house, i.e. 150K houses, the pound at $1.5 and gold at $750. This will temporarily upset anyone who's holding gold as a HPI hedge but there you go. I'm not saying the major trend still isn't down - it will be. I'm sure we'll see UK house prices worth 50 ounces of gold by 2020 but it'll be a long drawn-out process.

Part of the spike up in the gold price graph to form the right shoulder will be strong sterling - say gold at $1000, Sterling at $2.10 and UK house prices back down to 150K.

So at the moment you would suggest just sitting there holding onto sterling?

Don't buy USD, a house or gold. Better times ahead for sterling against all three. Do you own property?

Share this post


Link to post
Share on other sites

So at the moment you would suggest just sitting there holding onto sterling?

Don't buy USD, a house or gold. Better times ahead for sterling against all three. Do you own property?

I don't own property. I'm just renting.

You should:

1. Wait for GBP:USD to hit $2 or higher.

2. Buy USD.

3. Sit on USD and wait for gold to fall to $700 (and the pound will also fall back).

4. Buy gold at $700 an ounce.

5. Sit on gold and wait for houses to fall to 50 ounces by 2020.

6. Buy a house - or maybe more than one if you've got more than 50 ounces of gold.

Edited by AvidFan

Share this post


Link to post
Share on other sites

I don't own property. I'm just renting.

You should:

1. Wait for GBP:USD to hit $2 or higher.

2. Buy USD.

3. Sit on USD and wait for gold to fall to $700 (and the pound will also fall back).

4. Buy gold at $700 an ounce.

5. Sit on gold and wait for houses to fall to 50 ounces by 2020.

6. Buy a house - or maybe more than one if you've got more than 50 ounces of gold.

So putting some cash figures on that but ignoring charges and CGT.

Say you have an STR fund that is enough to buy an average house at say £170k.

At the moment you could buy $277k but you wait for $2 per £1 and instead buy $340k.

Then you wait until gold hits $700 and buy 485 ounces.

Then when UK house prices hit 50 ounces you could buy 9 houses instead of just 1

Sounds like a plan.

Share this post


Link to post
Share on other sites

Sounds like a plan.

It is a plan. Let's face it, a lot of us missed the gold spike that's just occurred. Personally, I was still saving money at the time so I didn't have a lot to invest when the gold price was low in 2001. But now there's a chance to get in at the "right shoulder" and see house prices go from 350 ounces all the way down to 50 ounces.

Getting into USD at $2 is just the sweetener. If I'm right, the pound will fall with gold at the same time and you'll have made 20% just on the currency trade assuming it falls back to around $1.60 although I reckon it could go lower. Then, if you're worried about buying gold at the "bottom" you don't have to be as you're 20% up on the currency trade.

The trick will be timing the currency trade as the spike up to $2 will be brief I think.

Edited by AvidFan

Share this post


Link to post
Share on other sites

It is a plan. Let's face it, a lot of us missed the gold spike that's just occurred. Personally, I was still saving money at the time so I didn't have a lot to invest when the gold price was low in 2001. But now there's a chance to get in at the "right shoulder" and see house prices go from 350 ounces all the way down to 50 ounces.

Getting into USD at $2 is just the sweetener. If I'm right, the pound will fall with gold at the same time and you'll have made 20% just on the currency trade assuming it falls back to around $1.60 although I reckon it could go lower. Then, if you're worried about buying gold at the "bottom" you don't have to be as you're 20% up on the currency trade.

The trick will be timing the currency trade as the spike up to $2 will be brief I think.

I've just been back testing. :lol:

Say you had enough cash for an average house in 2007 when it was £199,970.

You could have swapped the cash for $406,000

Then when gold hit $732 in Oct 2008 you could have bought 555 ounces

Then when gold hit £1,132 in 2011 you could have sold it for £628,000 and as the Halifax was £161,000 you could have bought 3 average houses and had £145,000 left over.

Share this post


Link to post
Share on other sites

I've just been back testing. :lol:

Say you had enough cash for an average house in 2007 when it was £199,970.

You could have swapped the cash for $406,000

Then when gold hit $732 in Oct 2008 you could have bought 555 ounces

Then when gold hit £1,132 in 2011 you could have sold it for £628,000 and as the Halifax was £161,000 you could have bought 3 average houses and had £145,000 left over.

Flaw in the plan is that nobody ever sells gold. It's lost 30% against sterling since April as house prices are rising and they still don't get it. Ah well........

Share this post


Link to post
Share on other sites

Flaw in the plan is that nobody ever sells gold. It's lost 30% against sterling since April as house prices are rising and they still don't get it. Ah well........

A few Americans must have sold some in 2011. Partly why the gold price fell, waiting for 100 ounces to buy a house?

Their houses then cost 96 ounces of gold and that was below the 99 ounces in 1980

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   211 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.