British Pound Crashes on Dovish BOE Inflation Report
Currencies / British Pound Aug 17, 2008 - 11:10 PM GMT
The FTSE finished the week down slightly, but the real loser last week was UK PLC. The pound crashed as various factors come to a head. Up until July, the US Dollar was the currency the world loved to hate, last week it was sterling's turn to be punished. The Bank Of England inflation report was more dovish than expected, opening the doors to possible interest rate cuts before the year is out.
This coupled with a housing market that has fallen through
the roof and warnings of a UK recession being imminent pushed Sterling down 2.8% against the Dollar and 2.50% against the Yen on the week. It wasn't all
one way traffic though and the pound managed to recover some ground against
the Euro in particular, finishing down just -0.67. Just a day after the
Pounds collapse, it was the Euro's turn to swoon on speculation that the
European Central Bank would begin cutting interest rates next year to boost
the shrinking Eurozone economy. The Euro finished down 2.17% against the
Dollar on the week and I now down 5.74% on the month.
World equities finished the week mixed. With the notable exception of the high
tech Nasdaq, most world indices finished the week in the flat or down
slightly. On the whole though, a relatively quiet economic calendar and low
summer volume muted activity after last week's impressive action. The
conflict in Georgia barely registered a twitch on oil prices and the week
closed with prices falling to $113.77. Also, due to the cessation of
hostilities in Georgia and the resurgent Dollar, Gold fell back well below
$800 after a tentative recovery last week.
The financial sector was once again under pressure last week and without the
FTSE's other major sector firing on all cylinders (oil), the index is showing
weakness where it counts. It has recently been reported that global bank's
losses & writedowns from the credit crunch have exceeded the $500bn marker.
To add to the gloom, New York University economist Nouriel Roubini has
recently estimated that this figure could double before the crisis is over.
The US housing market is still showing signs of weakness. If anything the
problem is accelerating despite numerous calls for a bottom over the last 12
months. Foreclosure activity increased by 55% year on year, with one in every
464 houses in trouble. The nascent UK housing collapse still has some way to
go to match the declines of the US market, but it may not be long before the
UK market registers equally grim readings.
Next week is relatively quiet with fewer top tier economic announcements. The
week starts with ZEW economic sentiment from Germany on Tuesday morning,
followed by US building permits and monthly PPI data in the afternoon.
Wednesday release of the minutes from the last MPC meeting will be closely
followed especially after the impact of last week's inflation report.
Thursday brings UK retail sales figures, with revised GDP numbers coming on
Friday morning. The week's hot trading ticket will be Fed Chairman Bernanke
speaking on Friday afternoon.
Last week was quiet by recent standards with no large 300 point rallies on the
Dow as we saw the week before. On this note the there was some interesting
research from David Rosenberg of Merrill Lynch (credit to Barry Rithholtz for
highlighting it).
Rather than being a sign of a market recovery, Rosenberg found that every 300
point rally on the Dow Jones Industrial average has occurred only during bear
markets. During the 2000 to 2002 bear market, the Dow had fifteen 300 point
gain days. Since the markets peaked around September 2007, the Dow has
technically been in a bear market and during this period there have been
seven days experiencing a 300 point rally on the Dow. More curious was the
fact that during the bull run from 2002 to 2007, there wasn't a single 300
point rally on the Dow.
According to Bespoke Investments ( http://bespokeinvest.typepad. com ) the
average return three months after a 300 point move is just 0.06%, hardly
grounds for the start of a spectacular rally. To take advantage of this, we
can place a ‘No Touch' trade on the Dow Jones, predicting that it won't touch
12,500 at any time during the next 90 days. This could return 57% inbetonmarkets.com if successful.
By Mike Wright
Tel: +448003762737
Email: editor@my.regentmarkets.com
Url: Betonmarkets.com & Betonmarkets.co.uk
About Regent Markets Group: Regent Markets is the world's leading fixed odds financial trading group. Through its main multi-awarding winning websites, BetOnMarkets.com and BetOnMarkets.co.uk, it has established itself as the leading global provider of a unique, powerful way to trade the world's major financial markets. The number, length and variety of trades available to our clients exists nowhere else in the world. editor@my.regentmarkets.com Tel (+44) 08000 326 279
Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.
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