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UK Pound Poised to Drop 20+%

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  • UK Pound Poised to Drop 20+%

    http://www.bloomberg.com/apps/news?p...erIu57Zw&pos=5

    March 1 (Bloomberg) -- While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.

    Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Concern that Greece won’t be able to cut its budget deficit helped send the euro 5 percent lower against the dollar this year.

    “Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”

    Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.

    Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”


    ‘Very Dire’

    “When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”

    The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.

    Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”

    Hung Parliament

    Brown must call an election by June and some polls signal that no party will emerge with a clear majority.

    The pound weakened to an almost 10-month low against the dollar today, taking this year’s decline to 6.5 percent. A YouGov Plc poll published yesterday showed Brown’s Labour Party only two percentage points behind the opposition Conservatives, the narrowest margin for two years.

    A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said.

    “There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”

    UBS Report

    The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.

    Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.

    The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.

    “If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”

    Selling Bonds

    Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.

    The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.


    To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net

    Last Updated: March 1, 2010 03:42 EST
    Greg

  • #2
    Re: UK Pound Poised to Drop 20+%

    The pound is definitely in massive trouble. The prospect of a hung parliament and the labour party's spending addiction is spooking the markets.

    There was quite a dramatic drop between 10am and 12.00 GMT. In fact it looked like it was in freefall falling 1 and half cents in a matter of minutes before what looks like intervention.



    Comment


    • #3
      Re: UK Pound Poised to Drop 20+%

      your intervention is my buying oportunity. Irrational moves like this are easy money for a nimble trader.

      Long term, i agree with the analysis - Sterling is foobar-ed. So is the Euro, Dollar, Rand, Zlotty, Krona....

      Comment


      • #4
        Re: UK Pound Poised to Drop 20+%

        Irrational moves like this are easy money for a nimble trader.

        I'd agree with you if it was an irrational move.But it looks a wholly rational move to me.

        And would you seriously buy sterling at this point? Ultra contrarian!

        Comment


        • #5
          Re: UK Pound Poised to Drop 20+%

          Originally posted by llanlad2 View Post
          The pound is definitely in massive trouble. The prospect of a hung parliament and the labour party's spending addiction is spooking the markets.

          There was quite a dramatic drop between 10am and 12.00 GMT. In fact it looked like it was in freefall falling 1 and half cents in a matter of minutes before what looks like intervention.



          A real shame I missed that one. That would have been a nice way to start the week off.

          Comment


          • #6
            Re: UK Pound Poised to Drop 20+%

            Jesse has an interesting post about UK issuing bonds in $US.

            http://jessescrossroadscafe.blogspot...nds-in-us.html
            England to Sell 3 Year Bonds - In US Dollars



            “In the eyes of empire builders men are not men but instruments.” Napoleon Bonaparte
            Got Gilts?

            Bank of England Plans to Sell 3-Year Bonds in Dollars
            By Caroline Hyde and Sonja Cheung
            March 02, 2010

            March 2 (Bloomberg) -- The Bank of England said it plans to sell three-year bonds in dollars to finance its foreign-exchange reserves.

            The U.K. central bank hired Barclays Capital, BNP Paribas SA, Goldman Sachs Group Inc. and JPMorgan Chase & Co. to manage the issue, which will be benchmark in size, it said in a statement. The bank paid 106.2 basis points more than Treasuries when it issued $2 billion of three-year notes in March last year, according to data compiled by Bloomberg.

            “The notes will likely receive good investor appetite seeing that it’s a AAA rated name,” said Trevor Welsh, a portfolio manager at London-based Aviva Investors, which manages about 10.5 billion pounds ($14 billion) of fixed-income assets. “This bond sale is purely a technical move for the bank’s foreign currency reserves.”

            The Bank of England is seeking to raise funds as confidence in the U.K. currency plummets on concern no party will win an outright majority in a forthcoming general election. The pound weakened 7.6 percent against the dollar this year, the worst performer among the 16 major currencies, as traders bet a new administration won’t be strong enough to reduce the nation’s budget deficit of more than 12 percent.

            It will be interesting to see if investors require a slightly higher spread because of sovereign risk,” Welsh said. “But if so, it won’t be more than a couple of basis points.”

            The central bank has issued three-year notes in March every year since 2007 to finance foreign-exchange reserves that support its monetary policy objectives, according to the statement

            Comment


            • #7
              Re: UK Pound Poised to Drop 20+%

              Originally posted by llanlad2 View Post
              The pound is definitely in massive trouble. The prospect of a hung parliament and the labour party's spending addiction is spooking the markets...
              Seems the worse the economy and the lower the Pound, the better Brown does in the polls. If he can drive it to parity in the next 90 days, hell he may get a majority...:rolleyes:

              Comment


              • #8
                Re: UK Pound Poised to Drop 20+%

                Originally posted by GRG55 View Post
                Seems the worse the economy and the lower the Pound, the better Brown does in the polls. If he can drive it to parity in the next 90 days, hell he may get a majority...:rolleyes:
                There is a glorious rant on this by Cranmer (not the stock picking guru, the archbishop). Excerpt:

                They were elected as New Labour, and they promised to govern as New Labour.

                And yet they have done exactly what Old Labour have always done: bankrupted the country.

                And the man responsible for a decade of economic inefficiency and fiscal incompetence as Chancellor of the Exchequer is now Her Majesty’s First Lord of the Treasury.

                He was never elected as Prime Minister: he is distrusted by the majority of the nation, criticised by his own Chancellor, loathed by his own ministers and despised by many of his backbenchers.

                This Labour Government took us to war on a false premise; has replaced Cabinet government with a politburo; diminished democracy; marginalised Parliament; taken in three million immigrants; saddled us with recession and soaring unemployment; given us the highest youth unemployment in history; eroded our liberties; abolished the right to trial by jury; raped the Constitution; politicised the civil service; sold off our gold reserves at the bottom of the market; raided our pensions; subjected us to the Lisbon Treaty; relegated us from 7th to 24th in international maths and literacy rankings; increased pensioner poverty; increased inequality; caused fascists to be elected to Brussels; massively increased our tax burden; imposed an incredible 5000 new laws; created an authoritarian state and thoroughly debased our politics.

                After 13 long years of extravagant spending, sinister social engineering, welfare expansion, uncontrolled immigration, endless fiddling with the electoral system, unparalleled electoral fraud, grotesque state encroachment into private lives and personal affairs and now a devalued currency, we have what must be the most stunningly incompetent government in the history of the United Kingdom (and God knows there are quite a few to choose from), and the most ideologically illiberal, oppressive and anti-Christian in centuries.

                You would think the Conservative Party would be on course for an electoral landslide.

                continues...

                Comment


                • #9
                  Re: UK Pound Poised to Drop 20+%

                  Originally posted by Chris View Post
                  There is a glorious rant on this by Cranmer (not the stock picking guru, the archbishop). Excerpt:

                  Do they have one ?

                  raped the Constitution

                  Comment


                  • #10
                    Re: UK Pound Poised to Drop 20+%

                    You would think the Conservative Party would be on course for an electoral landslide.
                    Except for the fact that the British electorate knows that the Conservatives have always been in thrall to the banksters and so don't trust them to run the country either.

                    Whether the conservatives would have created such an authoritarian, officialdom obsessed state is debatable, but the public don't seem to care that this has happened, so unfortunately it's not even part of the debate in the UK.

                    Comment


                    • #11
                      Re: UK Pound Poised to Drop 20+%

                      After a brief bounce( 1 for the nimble traders) the pound is continuing its slide.
                      Despite the weakening pound the UK trade gap widened to its worst in 17months at £8billion for the month of January against forecasts of £7billion.
                      Obviously the economists don't understand that a weak currency is pushing up producer prices more than they have factored in thus negating any perceived advantage. The reason they have come up with is the weather was bad in January! Who are these clowns?

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