Monday, January 14, 2008

US and Uk economies looking similar

The US and UK economies are looking more alike and that is causing the GBP gains over the last year to be reversed. What made the Pound increase in value was good growth with low inflation. The numbers were appealing relative to the U, but since hitting a high in early November the pound has decreased by over 7%. Much of this decline is associated with the fallout from the credit crisis. We are seeing the same type of mortgage mess and credit problems with banks. Credit has become restricted. Inflation is higher, and the Bank of England has been forced to ease interest rates. The story sounds familiar.

A high correlation would usually mean a range market for the currency, but in he case we are expecting that the pound will decline versus other major currencies and may underperform relative to the dollar.

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