The Sun Hasn’t Set On The British Pound Yet
When I studied at the University of Gloucestershire in England as a college junior, I remember getting into a conversation with a particularly studious fellow classmate about whether England would ever adopt the euro as its currency.
His final thought was yes: the country as a whole wouldn’t be happy about it for a variety of reasons, but it was inevitable sooner or later.
And as the euro marks its first double-digit birthday right along with a never-before reached rate against the British pound (1.02522), it seems logical to start believing that the “sooner” part of his prediction is true rather than the “later.”
That’s especially true with the Bank of England deciding whether they should cut interest rates again, even though at 2%, they’re at their lowest since 1951. And according to Forecast Pte Ltd currency strategist Lee Wai Tuck as reported by Bloomberg.com, the pound may decline as much as 96.50 against the euro today alone.
There are numerous reasons why it’s performing badly, including weak house price data - which are expected to weaken further in the upcoming year and possibly even into 2010 - and lack of internal spending. Chalk in lowered interest rates, and a more severe recession and you have a perfect recipe for a declining pound.
The British pound appears doomed.
Then again, maybe not, and a good old stiff upper lip might be exactly what’s needed. Because currency investors are beginning to bet on the UK currency again. They expect it to take some initial hard knocks in 2008 before rising again by 14% against the euro.
Monday, December 29, 2008 — by Jeannette Di Louie, Assistant Editor of Mt. Vernon Research
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