The pound soars !!

There is quite a difference between the banking losses in the UK and those in the US.

A large proportion of the UK banking losses were due to the UK banks using real money (from the UK economy) to buy worthless US paper from the US banks – the impact of this was a real cash loss of billions to the UK economy and a real cash gain of those same billions to the US economy.

This has resulted in a permanent comparative value shift between the economies which cannot be reversed – in other words, in the recent banking meltdown the UK banks (and economy) have subsidised the losses of the US banks.

This also applies to all those other countries (and economies) that were gullible enough to buy the worthless US paper.

Unfortunately for the UK & other countries, in their haste to get their snouts into the trough, their bankers were so massively incompetent that they failed to insert any protections into the contracts which would realistically enable them to pursue recovery of the real money they lost through the courts.

The impact of this is (with all other things being equal) that the GBP and the currencies of other countries (that bought the worthless US paper) will not return to the previous levels that they had against the USD.

There is an old saying something along the lines of not counting your chickens ........ or is it chickens coming home to roost

GBP v USD on 5th & 6th August 2009


GBP v THB on 5th & 6th August 2009

The vertical drop at 12.00 on the 6th August coincided with the announcement by the Monetary Policy Committee of the BoE that it was increasing the size of the “Asset Purchase Programme” by GBP 50 Billion to GBP 175 Billion. Fuller details in BoE news release: http://www.bankofengland.co.uk/publicat ... 09/063.htm

It was also reported on this thread by "arjay": extra-50bn-pumped-into-uk-economy-t14754.html

In my opinion the reporting of what Mervyn King said was very misleading; he said nothing about wanting a weak currency, what he actually said was “the fall that we have seen” which is about the past not the future.

What he actually said in the article was:

“That rebalancing of the UK economy that I have been talking about for about 10 years, is very necessary. I think the fall in the exchange rate that we have seen will be helpful to that process but there’s no doubt that what we need to see now is a shift of resources into net exports”

The full article can be read here: http://www.journallive.co.uk/north-east ... -24767811/

Unfortunately for Brits, the flawed reporting of these comments coincided with statements from the US Treasury about wanting a strong dollar and thus the GBP was hit with a double whammy

In my view, the GBP is currently moving sideways and is rangebound between 1.55 & 1.70 to the USD, mathematically this means that with the USD at 33.5 the GBP can range between 52 & 57 to the THB.

What happened last week shows that the markets are very sensitive and can and are easily being moved (or manipulated) by sentiment rather than facts.