Analysis - Pound strengthens as EC approves of deficit reduction measures

[HEXUS]

Good news for the tech channel as a stronger pound should equal cheaper imports.

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[Saracen]

As always, a strengthening of the pound is good in some ways, but bad in others. Given that the government seems to be planning in export-led growth to get us out of the poop, a strengthening pound isn't that helpful.

Also, while the dollar is one situation, I'd be worried that strengthening against the Euro isn't so much a vote of faith in the pound, but rather, a reflection of considerable uncertainly about the state of, and even future of the Euro. That's not to say I think the Euro will fail, but merely the fact that the possibility is being discussed is a gross change from a few months ago. And it's not just that Greece, and perhaps others including most worryingly Spain, have problems. It's that there is a lot of groundswell of public opinion even in strong economies like Germany, worried about the fact that the Euro means that they are bearing the brunt of the bailout for Greece, and that it;s hurting German economic performance. I've seen surveys which, regardless of how reliable they are, suggest that support for going back to the DM is somewhere in the 50% - 60% bracket in Germany. They don' like the notion of paying the huge cost of bailing out Greece, and I can't say I blame them.

[Scott B]

As always, a strengthening of the pound is good in some ways, but bad in others.

Agreed, and the US has plenty of problems of its own. But this movement does at least indicate a bit more confidence in the quid than a couple of months ago.

[Scott B]

Good news for the summer holidays too

[oolon]

Agreed, and the US has plenty of problems of its own. But this movement does at least indicate a bit more confidence in the quid than a couple of months ago.

I had invested heavily in the chocolate coin and was waiting for parity with the pound, the way things are going I might have to eat them instead!

[Saracen]

Agreed, and the US has plenty of problems of its own. But this movement does at least indicate a bit more confidence in the quid than a couple of months ago.

Perhaps. I'm not saying that's not the case, but as it's a relative measure, all a strengthening against a specific currency really indicates is that, right now, confidence relative to that currency is up, which might be confidence in the pound, or lack of confidence in the other currency.

Even then, it's a tad dangerous attributing it to confidence in budget measures, because while that may well be a factor, it isn't as simple as just confidence in the budget measures, because there is certainly an element of comparison between what the budget turned out to actually contain, and what the market had already priced in about what they expected it to contain.

[Saracen]

Good news for the summer holidays too

Compared to the last few weeks/months, yes, but compared to a couple of years ago, when the pound was hovering at or about the $2 mark, it's still bad if you're going to a dollar country.

[Scott B]

Perhaps. I'm not saying that's not the case, but as it's a relative measure, all a strengthening against a specific currency really indicates is that, right now, confidence relative to that currency is up, which might be confidence in the pound, or lack of confidence in the other currency.

...which is why I chose several currencies.

[TheAnimus]

I think this might be a touch of half empty, half full going on, but actually Scott might like me today.

To me it definitely looks like he is more right.

Lets assume the markets are going to be arbitrage free, by this I mean, EUR into GBP into USD, is the same result as EUR to GBP, if it wasn't a lot of the hedge funds would pounce, and plenty of banks systems would fall over (http://en.wikipedia.org/wiki/Positive-definite_matrix is assumed)

So a quick shift at the graphs, the of GBP USD and EUR USD, whilst its obvious the USD has fallen, it has fallen more against the GBP than the EUR.