British Pound: Understanding the Moves

The British pound hit a high of 1.4605 this morning after falling to a low of 1.4137 yesterday. Although we have a mild improvement in risk appetite that is helping to propel the GBP, CAD, AUD and NZD higher, 2 stories making the wires are responsible for the volatility in the British pound.

Story #1 : Darling to Get Attacked Over Sterling Slide

The main story behind the British pound rally during the early European trading session was talk that European finance ministers will be attacking UK Chancellor Darling over the sterling’s slide. Over the past 6 months, the British pound has fallen more than 20 percent against the Euro and close to 30 percent against the US dollar. The most dramatic slide has been seen in GBP/JPY which dropped 55 percent.

Story #2: HBOS Expected to Report a GBP8.5 billion Loss

However some of the gains in the British pound were erased beginning around 8:40am this morning after news broke that Lloyds Banking Group expects HBOS to report a GBP8.5 billion loss. Remember that the UK government owns 43% of Lloyds so a loss for Lloyds means a loss for UK taxpayers.

Impact on British Pound

The threat of criticism at the G7 meeting should limit any further losses in the British pound. However, once the G7 meeting is over, we could see short term weakness in the pound. The Quantitative Easing that the BoE is expected to undertake should drive EUR/GBP towards parity.

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6 Comments

  1. HI Kathy, I just wanted to thank you for helping me learn about how to read and project fundamental data. It has really helped me become a better trader. I started reading you columns on Daily FX and now read them on GFTeveryday and they are always insightful. You have an uncanny way of calling the NFP correctly. Keep up the great work and thanks again. Daniel

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  2. 非常喜欢你的帖子,我也是日内交易,当然趋势分析不可少。我觉得吧,英镑利率是否已经见底了呢,那么是否将跟美元,日元一样呢,从周图看,还差一个颈线高点和一个底的低点,欧元看还不明朗,不过市场已经将降息预期计入汇价之中吧,觉得该涨了。。。

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  3. Interestingly from the minutes in Rome, sterling does not seem to have been mentioned, the BoE will not intervene in sterling and i doubt any other central banks will, so sterling is very much exposed to market forces.
    Interest to see the CPI Inflation feel by 0.1% in January & RICS predicting some positivity in the housing market in coming months – this gave the sterling some support today on speculation the base rate may not be cut as aggressively (Still think BoE will press ahead with rate cutes toward 0% and QE measures)

    Very difficult to predict accurately mid/long term view on sterling and trading is on short term signals. Felt sterling would receive a boost from US stimulus package but has headed south with the markets instead. Slight more bullish on sterling than most traders as would expect some “bounce” if/when US stimulus package is ironed out and hopefully starts feeding capital into the markets and risk appitite returns

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  4. Kathy,
    Hypothetical question:
    At what point (if at all) do you think the BoE would have to take action on sterling if we see continued long-term down trend or run on the time?

    D.Gov Bean comments have scared me that the BoE is prepared to use the cheap Pound as a weapon in its fiscal stimulus plan and this could lead to a major run at some stage – do you see the BoE having to reserve policy if the pound hits say $1.20?

    Reply
  5. Correction – above post should read- “At what point (if at all) do you think the BoE would have to take action on sterling if we see continued long-term down trend or run at some time?”

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