Why is the pound in a state of collapse ?

[yllig]

The following email received today from TOR FX currency company.

"Market Update - GBP EUR
5th January 2009

Sterling continued to plumb new depths over the holiday period, coming tantalizingly close to parity with the Euro. The low was around 1.02 leading into New Year, since when we've seen a strong bounce to recapture 1.05+.

If you believe the headlines over the last few weeks the pound will soon be replaced with the Euro! This is hardly likely however, with parts of Europe struggling to hold a single currency stance as economic reality diverges among member states. In fact, the media gloom surrounding the pound has reached such a fever pitch in recent days that we are likely to be close to a major low, or possibly have seen it at 1.02 last week. Media hype usually correlates well with market turning points, so my bet is that sterling will improve over the first quarter of 2009. We won't reach the heady heights of 1.40 again any time soon, but I think 1.10 - 1.15 is a realistic level over the next few weeks depending on the central bank meetings over the next two weeks. The Bank of England meet on Thursday, and are widely expected to cut rates by another 0.5%. A larger cut could see sterling come under renewed pressure. Next Thursday it's the turn of the European Central Bank. The ECB has taken a more "hawkish" approach to interest rate policy over the last year, proving more reluctant to cut rates than other major central banks which partly explains the strength of the Euro lately. With the headline rates standing at 2.0% for sterling and 2.5% on euros, investors are attracted to the higher Euro yield.

The technical outlook remains highly precarious despite the current surge. The trend is still very much down, but there is little in the way of technical resistance until 1.0800, so the current rally could go further in the short term. If we could gain a foothold above 1.08, 1.1080 comes into focus. Clients with Euro requirements should consider placing a stop order in the market to protect against renewed weakness should sterling take yet another pounding"

Bits of this report sound promising.

[yllig]

Well its been up to 1.08 this afternoon. I am keeping everything crossed.

I think the headlines saying maybe down to 1% or even 0% have already been factored into the big fall over the last few weeks anyway so hopefully wont affect the rate too much.

[John50]

Possible good news for the Pound ?

This from the latest newsletter:



Posted: 05 Jan 2009 02:55 AM

The focus in financial markets will continue to look at the factors that were the primary driving forces towards the end of 2008 in the depth and durations of the economic downturn in the major world economies and the consequent extent of monetary or quantitative easing.

Following on from last week, the Pound slumped for a third consecutive week against the Dollar, trading as low as $1.4380 on Friday, to record the longest run of declines since September, while the UK currency also lost ground against a basket of currencies as mortgage approvals tumbled and manufacturing shrank.

Lenders granted just 27,000 home loans in November, down from 31,000 the previous month, and banks said in a survey that they plan to restrict all lending further in 2009, leading to speculation that the government will have to announce a second stimulus package to revive spending.

UK mortgage approvals have now slumped to the lowest level since records began in 1999 as house prices fall by the most in 25-years in 2008 and the deepening UK recession is expected to see the slump in the property market gather momentum over the coming months.

According to a report from HBOS Plc, house prices plunged an annual 18.9% year-on-year in December and that prompted the Prime Minister Gordon Brown to pledge new measures to try and bolster the economy and halt the first recession since 1991.

Elsewhere, the Pound was also undermined as a report from the Chartered Institute of Purchasing and Supply showed that UK manufacturing shrank for an eighth consecutive month in December as companies shed jobs and limit production.

The Nationwide Building Society released a statement on Friday, saying that the lender won’t be passing on further reductions in the Bank of England’s benchmark interest rate and the government will now have to look less conventional techniques in an attempt to revive growth.

The Bank’s monetary policy committee slashed rates to 2.0% in December and to the lowest level since 1951 but investors are already speculating on the probability of another 50 basis point reduction this Thursday as the freeze in lending persists.

The Pound edged perilously close to parity against the Euro over the Christmas and New Year period amid concerns that the UK economy is headed for the worst and most prolonged recession since the end of the Second World War, which will force the Bank of England into a period of quantitative easing.

The Pound last year posted its worst annual performance against its European counterpart since the Euro's introduction in 1999 amid speculation that the Bank of England will keep cutting interest rates all the way down to zero per cent and mirror the actions of the U.S Federal Reserve.

Nevertheless, the UK currency may rebound from its worst year on record against the Euro as investors start betting on a recovery in the UK economy, while the revival in risk appetite saw the FTSE 100 Index post its biggest-ever gain for the first trading day of the new year.

The Euro rallied furiously against both the Pound and the Dollar amid suggestions that the European Central Bank will not cut interest rates below 2.0% but the worsening economic outlook in the region has revived speculation that the policy makers will have to ignore deflationary pressures and continue the pace of monetary easing.

The ECB Vice President Lucas Papademos said that an economic recovery may not begin until 2010 and that policy makers will have the scope to cut interest rates if inflationary pressures slow further.

The Central Bank have reduced the benchmark lending rate by 175 basis points since early October to 2.5% but policy makers are under pressure to cut more aggressively amid Europe’s first recession in 15-years.

European retail sales fell for a seventh consecutive month in December, while manufacturing output has shrank at the fastest pace on record and the economy is expected to be even weaker in 2009 than the Central Bank’s prediction of a 0.5% contraction last month.

The Euro may also struggle to stem the flow of losses this week as further weak economic data is anticipated and the downturn in activity is likely to be highlighted by the falls in both German and French industrial production.

Elsewhere, unemployment in the Euro-zone is expected to increase marginally in November, while the focus this week will fall on the harmonised index for consumer prices, which is expected to confirm that the inflation rate fell to 1.8% in December from 2.1% the previous month.

The Dollar has made robust gains against the Pound in recent weeks, while the U.S currency has also bounced back versus the Euro but the data released this week is expected to highlight the continued weakness in the economy.

Service sector growth is not forecast to show any significant recovery in December, while factory orders and pending home sales will probably post further declines but the focus this week will fall on the U.S employment report this Friday.

Another substantial drop of 485,000 in non-farm payrolls is anticipated in December, which would give a cumulative decline of more than 1.7 million jobs over the past four months and the unemployment rate is expected to rise to 6.9% from 6.7% the previous month.

£ currently 1.066 Euro

[6mauledrv]

Euro weaker this morning against dollar and pound.
Perhaps a turning point?
ATM 1 GBP=1.06 EUR

[angel_xxl1]

I change few days ago in the bancaja
180 pounds and I had for this 178 euro ......

[John50]

0% BofE rates on the way together with subsequent weakening in Sterling:

Bank cuts to the chase on rates ... and there's more to come | Business | The Observer

[yllig]

Hope you are wrong.

A couple of interesting articles online today.

The euro's bitter-sweet triumph at 10 - Telegraph

New year nightmare brings spectre of 1930s-style depression to eurozone | Business | The Guardian

[John50]

My prediction for the BofE and ECB meetings soon to be held:

BofE drops rates to 1%
ECB drops rates to 2.25%

£1 buys 95 euro cents

[John50]

A very happy, peaceful and hopefully less economically stressful 2009 to one and all. (myself included) !

[6mauledrv]

Don't despair yet.
Pound's up to nearly 1.05.
Could this be a change of direction?
It would be a great new year present!

[bob@goodman9741.fsnet.co.]

sorry. just crying in my beer,
Bob.

[Armin Tamzarian]

yes and dnn`t forget many will opt for hols outside the euro zone making the euro and dare isay it euro property worthless ,great happy new year
Bob

Just in time Bob. With less than 10 hours left until the end of 2008 you win the prize for the dumbest statement of the year.

[bob@goodman9741.fsnet.co.]

yes and dnn`t forget many will opt for hols outside the euro zone making the euro and dare isay it euro property worthless ,great happy new year
Bob

[rspltd]

Euro/pound

I think there will be a change when the Eurozone finally comes clean about their finances.
"'While the outlook for the UK economy is pretty terrible, we're at a stage where that's already in the price,' said Ian Stannard, a senior currency strategist in London at BNP Paribas."

'The big shock next year is going to come from the eurozone as the economy contracts much more than currently expected. The ECB will have to wake up and start cutting rates. That's going to really damage the euro."

[John50]

On this last day of 2008, a tumultuous year for many of us, currently the pound buys 1.034 Euro.