the gestalt shift

Update on GBP/USD position: Gordon Brown, the Bank of England and more

I’d like to post a brief update on the GBP/USD view. The pound has been holding high despite multiple threats to dollar buying over the past weeks. One should not confuse the pound as being too correlated to other currencies against the dollar. Many media outlets have been blaming the weakness in GBP/USD on a stronger Dollar, however, the quick recovery in the Pound after the opposition party failed to remove Gordon Brown from office showed that the decline was due to currency weakness rather than Dollar strength. Furthermore, the CPI data that came out of the UK today (2.2%) indicated annual inflation continuing to decline toward the Bank of England’s 2.0 target. Along with the fact that manufacturing output and industrial production have increased implies that the BOE’s asset purchase plan is working and is not leading to runaway inflation. The market may thus look at British investments as safer than originally thought.

Some risks to this bullish view on GBPUSD could be anything that would disprove that the Bank of England’s asset purchase plan is working. In the immediate sense this could be a retail sales number that doesn’t indicate higher consumption of all the new goods being produced as stated above. Over the longer term this could include continued lower output and production numbers. Otherwise, opportunities may exist for buying the Pound on dips due to Dollar bullishness unless a truly new perception of Dollar strength captures the market.

Tuesday, June 16th, 2009, by admin and is filed under "Trades, gbp/usd, gordon brown, pound ". You can leave a response here, or send a Trackback from your own site.