May 2, 2008 – 4:13 am
Written by Kathy Lien, Chief Strategist of DailyFX.com
This week, economic data has had zero impact on the British pound.
Over the past few days, the currency pair managed to rally on weaker economic data and today it sold off despite a smaller drop in manufacturing PMI. The move in the sterling is largely due to the overall strength of the US dollar although there were some positive news from the UK government this morning. According to the bank of England’s Financial Stability Report, the worst of the global financial crisis could be over. Prime Minster Gordon Brown also promised to cut corporate taxes to prevent UK companies from moving abroad. At the same the BoE warned that the country’s biggest banks could see major losses as the commercial mortgage market deteriorates. Nonetheless the UK economy is still in a vulnerable position which makes further gains unlikely.
One Response to “British Pound Shuns Economic Data”
The US dollar has been weakening against the UK pound for several years, reaching a record high for the pair. In fact if we go back to 1984, when the pair were virtually at parity ( one pound was worth just over one dollar), the US dollar has been in a steady decline since, and as recently as December 2007 reached the all time high of almost 2.12, a level not seen before. As a currency trader, the question I am always asked is where do I believe the currency is heading in the future - a critical question if you are thinking of buying and holding US dollar assets long term, or paying for these assets in US dollars. Naturally there are many factors which affect the long term relationship but my current reading of the charts would suggest that if the pound breaks below 1.93 then it is likely to weaken further to 1.75 in the medium term.
By Anna Coulling on May 8, 2008