The Pounds Recovery?

The small fall back in the GBP is (IMHO) mainly due to some profit taking on the sharp upward blip earlier this week and, in my view, more importantly the GBP briefly testing 1.60 against the USD.

1.60 is the next psychological resistance level for the GBP against the USD and it will probably bounce against it a few times before breaking through.

Over the last few weeks it has begun to dawn on financial commentators that the fear mongering that they have been spreading about European problems (including the UK) are, in comparison to those in the US, grossly overstated.

Tough economic medicine is being given and taken in Europe (albeit very reluctantly in some areas).

Governments are endeavouring to balance their budgets with a welcome return to fiscal conservatism (actually, it is not welcomed by all, but it is welcomed by me) by a combination of increased taxes and decreased spending - the realisation is finally dawning on European politicians that their economic policies were bankrupting the area and were completely unsustainable.

The inevitable effect of substantial budget deficits is a devalued currency, something that most Europeans are very well aware of (even if other areas are not) – this is an area of divergence between European and US Central Bank policies, the brief for Europe is more about maintaining the value of its currencies compared to the US where it is more about maintaining growth.

These are updated versions of the charts I posted earlier in this thread:
G B P / T H B

G B P / U S D

JimboPSM wrote:The small fall back in the GBP is (IMHO) mainly due to some profit taking on the sharp upward blip earlier this week and, in my view, more importantly the GBP briefly testing 1.60 against the USD.

1.60 is the next psychological resistance level for the GBP against the USD and it will probably bounce against it a few times before breaking through.....

The GBP briefly tested, but did not break through, the 1.60 level against the USD today after the release of the US "Nonfarm Payrolls" numbers which were weaker than forecast.

This year It has become common for the economists to get their forecasts wrong - there appears to be a common theme to their errors, in the case of Europe and the UK they have been excessively bearish and with the US they have been excessively bullish - It does give cause for concern with regard to their objectivity

Two pieces of finance news out today which makes one wonder just how connected are the currency markets to international economics and at just what stage the "recovery" in each country may actually be:

1. Home repossessions fall further in UK - from BBC Business News


http://www.bbc.co.uk/news/business-10950327

2. Bank Repossessions Drive up US Foreclosures - from CNBC Business News


http://www.cnbc.com/id/38671692

Irrespective of where the respective recoveries may actually be, the markets have once again taken fright this week and the (short term) hot money is in yet another (albeit IMHO probably very temporary) flight to safety.

arjay wrote:Jimbo, could the fallback also be in part due to the BOE's forecast of a choppy economic recovery for the UK? ............

Yes, its also due to all of those that you mention, my comments were more about the irony (or maybe conundrum) of the way markets appear to move when similar types of news appear to show that their economies are actually heading in different directions.

Movements are actually the result of a great number of factors which are often given disproportionately large or small weight in comparison to their real economic impact, some factors such as sentiment and momentum are more apparent than real and some figures that may be almost wholly ignored in one country with regard to market impact are actually given great weight in the other.

As an example, US trade figures rarely produce any significant impact on the USD (no matter how good or bad they are), but even small movements in UK trade figures can move the GBP quite substantially.

Mervyn King and the BOE gave what I thought was a "brutally" realistic assessment of the UK - I cannot recall Bernanke (or Greenspan before him) ever giving a similar kind of "brutal" realism in the US because it would effectively have been political and/or career suicide.

As an aside, anyone else notice how David Blanchflower who (in my view) like Greenspan was one of the architects of the mess we are in is now hyper-critical of the necessary (IMHO) austerity measures required to sort the mess they helped create.

arjay wrote:....... Although on the positive side there was the fall in UK unemployment figures:

http://www.bbc.co.uk/news/business-10936574

.... and on unemployment Bloomberg are reporting today:

U.S. Jobless Claims Unexpectedly Climb to Five-Month High

More Americans than forecast filed applications for unemployment benefits last week, signaling firings stepped up as the economy slowed.

Full article: http://www.bloomberg.com/news/2010-08-1 ... -high.html

When I look at reasonably comparative economic indicators in the UK and the US I am seeing economies that look to be heading in two different directions - however I always worry that appearances can be deceptive and that there may be some important factors I have overlooked

With regard to the real performance of the Thai economy and the THB, I have more or less given up on trying to analyse reported Thailand economic numbers and correlate them to currency movements – for some reason the Thai economic numbers all appear more than a little bit Greek to me

For some reason the financial media appeared to have a “down” on the UK and Europe last week.

For instance, in the early part of the last week there was a lot of speculation that the various European GDP figures due out at the end of the week would be much worse than forecast and this was one of the main reasons that both the EUR & GBP were hit heavily during the week.

At the end of the week, when the European GDP figures were released, it turned out that although overall they very comfortably beat the market forecasts (although the Greek figures were worse) the effect on the EUR & GBP was negligible.

Some commentators on both Bloomberg and CNBC Business News rather than analysing why the GDP figures were so good almost immediately started speculating that the European GDP figures were not sustainable

According to XE.com currency chart the pound is the same as it was a month ago. The GBP/THB chart for the last month resembles a mountain climbers journey.

OT.........