The Pound Will Rebound

In the short term exchange rates adjust, in the medium term its the economy that changes.

Harvey Jones here.

spasmodicus. If I was able to tell you exactly when the pound would rebound and to what level, I wouldn't be writing articles, because I'd be far too rich.

My point is that everybody has written off the pound to the point that it is oversold, and maybe a brave contrarian could benefit from this.

The pound has already bounced against the dollar.

The only bounce that the pound will get is if there is a decisive election result followed by decisive gov action. Additionally there will need to be no further ecomonic shocks.

The gov has a large liability in the form of RBS/Lloyds, should any further global weakness reappear the pound would drop at a much faster rate again.

I think you mentioned the best currency bet and that is the Japanese Yen. Everything points to it weakening. Overvalued, gov and central bank trying to push it down, what more could you ask for?

I'd guess the main winner would be the USD as the EUR also seems overvalued.

I can't see how we will not see the pound permanently devalued as the ultimate result of government debt. Quantitive easing has already been used and inflation is the aim of the game in order to reduce the effective debt. How much of this has already been accounted for in the current value of the pound and if its over done I don't know but I suspect the next government may well deliberately further devalue the currency, regardless of who wins the election.

Hi Jonesy12,

[I]My point is that everybody has written off the pound to the point that it is oversold, and maybe a brave contrarian could benefit from this[/I]

You may be right, but it seems to me that £, $ and Euro are all pants. In taking a position on this, you have to decide which pants will drop the quickest.

Hi Spasmodicus.

Your comment about pants made me laugh, and I completely agree with you. It looks like it's a race to the bottom!

And jonesj909: Good point. It's scary to think that only the Tories can save us now.

Harvey Jones

5753225: I remember Peter Hain as a bumptious young believer in 'Direct Action'. He appears to still believe that, given his current attempts to turn us into the new Zimbabwe. I wonder what his reaction would be if we all rioted in the streets against 'government' by his selected party. The Tories are the best of a bad lot. Heaven help us.
Most of my neighbours are busily turning their cash into genuine wealth, carrying out major work on their houses before huge inflation arrives. There is a limit to how much of this you can do so what DO you convert your cash in to?
I'd love to see the pound rebound but I'm not holding my breath.

I know I was sceptical on the pound in my previous comments, but one thing in the pounds favour which dropped off my radar was the end of QE from the BoE. So maybe there's more to be said for the pound after all.

The end of QE could be seen as the start of monetary tightening in the UK rather than interest rate rises.

The Euros overvalued anyway, so atleast we should see the pound do well against the Euro.

Olympic games will bring. On the back of increased, if not temporary foreign investment, I can see at least a positive blip. People are seeming to ignore history. Yes we have been hit by an almight bust. However a bust is ALWAYS followed by a boom, and vice vera. We are feeling the effects of a micro-managed Labour economy. An economy that was prevented from following the historical pattern of boom and bust, through extravagent borrowing beyond means. Look back for the past 50 years and see predictable patterns of boom and he bust. The Labour government circumnavigated the busts through borrowing money, and essentially riding the waves of successful gambling. Eventually they lost. We are now paying the cost for 2-3 busts that are in Lew. Once the costs of these be been payed back, the economy and the strength of the pound will rebound. Much of this will be based on confidence. A conservative government applying monetary policy more akin to the past will bring stability and a more positive belief in the pound.
It is interesting that since the BoE has stopped it's printing of money, that the pound has further weakened. The Dollar, to the contrary has strengthened, amid positive forecasts. As the global currency, all markets are linked to the Greenback, and further appreciation will lead to western rebounds, of which I believe the Pound is set to see a 5-10% rebound in the next month or two. It is interesting to hear a statement from Afghanistan's prime minister, that he aims to produce 300,000 state trained slodiers and recognises "the burden", on the west. In line with my predictions of a 4 year period until recovery of western currency, I would envisage a markedly less financially dependent Afghanistan and generally lower financial burden to the west by that time. The emergence of China, will also have an effect on the strength of currency. Most countries are indebted to China, of whom is the owner of countless bonds, especially those belonging to the U.S. The stronger Chinese currency markets are, the less indebted the West becomes. In the current financial crisis, China is looking to increase it's domestic demand. This will only bode well for foreign countries, as I forcast that China's huge reliance on exports will dwindle, and as such, it's grip on fiscal policies and relentless forced devaluation of it's currency wil be loosened. However, this will be a gradual development, as the modernisation of the country and in a sense, it's "Westernisation" will take place over the long term. We can already see the wheels in motion, on the one hand reching out to China and on the other receiving complaints of protectionism from the Chinese.

A supporting piece of information that lend to 2012 being the beginning of a turning point is as follows:

The pound sunk over a 150 pips to below 1.5160 by the dour BoE quarterly inflation report, as the central bank painted a dismal picture of tight credit markets and depressed prices until 2012. Indeed, Governor Meryn King stated that expectations are that inflation will remain below their 2% target until 2012 as the economy is looking at a relatively slow recovery.

In my opinion, house prices will begin to markedly rise again in 2012, which will have a knock on effect on inflation. Interest rates will rise, and investment into the U.K. will increase. When this happens, currency will appreciate.