British Pound, What Happened to the Weakness of Sterling?

By: Seven_Days_Ahead

The Macro Trader’s view:
The Pound has staged a sometimes volatile recovery for much of this year. It is now far higher than the lows it reached during November and December 2008 when traders thought the UK would suffer most of the G7during the recession.

The Pound recovered as it became clear that the UK was not uniquely suffering. The US, Eurozone and Japan have also suffered steep contractions in economic growth.

Nonetheless, traders recently began again to question the relative strength of the UK after surprisingly negative comments from Bank of England Governor King.

Additionally, the credit rating agencies raised a question mark over the UK’S Sovereign credit rating and many questioned the sustainability of the UK’S current fiscal stance which looks disturbingly weak for years ahead.

Moreover, last week seemed to answer the question when a worse-than-expected Q2 GDP report was released. It showed the worst year-on-year GDP contraction in 60 years. But one week later the Pound is looking to resume its recovery against the Euro and is holding up against the Dollar, Why?

The market saw last week’s GDP data as grim, but the quarter on quarter report, while worse than consensus, was much better than the Q1 report, and offered the prospect that the worst of this contraction was over.
Additionally, retail sales last week came in stronger at 1.2% on the month and 2.9% on the year, so consumer demand remains alive and well, but of equal importance is the housing market.

Here too data has been improving and seems to show the housing market at a turning point. Today saw the release of the Nationwide Building Society House price survey and it rose by 1.3% on the month with the 3 month on 3 month rate also positive. It has now shown house prices rising for 4 out of the last 6 months.

The Halifax survey, although more patchy, has also recorded rising prices and the Land registry has for the 1st time in 18 months shown a price increase.

So while a boom isn’t around the corner and  there is a very realistic prospect of growth resuming later this year, the economy is clearly emerging from the worst of the downturn. How vulnerable then is Sterling to the downside against the three Majors?  For choice, we are wary of Cable.  But Sterling looks powerfully support against both the Yen and the Euro

The Technical Trader’s view:

WEEKLY SPOT CABLE CHART Throughout June July and August the market’s rally stalled. Technically there has been good resistance to overcome. And that resistance remains. But equally there is no stomach for a sell-off.

Philip Allwright
Mark Sturdy

Seven Days Ahead
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Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level technical and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

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