Thursday December 6, 2007 - 11:55:24 GMT
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Black Swan Capital - www.blackswantrading.com
British pound: Nowhere to Hide
FX Trading â€“ British pound: Nowhere to Hide
The British pound plummeted yesterday.
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Why did the pound crack? Mostly because concerns about falling home values in the U.K. have prompted investors to call for an interest rate cut from the nationâ€™s central bank. Hmmm â€¦ a collapsing housing market to bring about rate cuts â€¦ sound familiar?
The Bank of England is meeting today and will announce their decision on interest rates at the top of the hour. Falling house prices, an unruly credit market and inflation hovering above the bankâ€™s comfort level is what theyâ€™re surely struggling to balance.
Earlier this week the Bank of Canada surprised the market when it cut its benchmark interest rate. And factoring in 75 total basis points of Federal Reserve rate cuts may give the Bank of England some inspiration to slash its lending rate from 5.75%.to 5.5% today.
As I see it, the British pound loses out if the bank cuts rates. Then again, the British pound also loses out, though maybe more slowly, if the bank keeps rates unchanged. But the fact is, as all the risks to the U.K. economy have piled up, the British pound has ignored them and remained strong against the dollar.
But now sterling may not live to fight another day â€“ itâ€™s extremely overvalued and the fundamentals are catching up; the pound is on the edge with nowhere to hide.
John Ross Crooks III
Black Swan Capital
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