Good Time to Invest in British Pounds and reasons why... Print E-mail

Eoin Treacy (Fullermoney): Outlook for British pound “The pound was one of the world’s worst performing currencies from late-2007 through to the end of the 2008. As a major European economy, outside the Eurozone, with a burst housing bubble and a heavy reliance of the City’s financial sector, the UK is more exposed to the effects of the credit crisis than many others.

“The UK took no action to support the currency as it declined, since it helped to make UK exporters more competitive. As short-sellers focused on sterling as a vehicle for taking advantage of the credit crisis, the pound’s fall outpaced that of its trading partners and on a trade weighted basis, it fell over 30% between mid-2007 and late 2008.

“The Deutsche Bank British Pound Trade Weighted Index ranged from 2001 to the middle of 2007. However, it broke emphatically below 95 in December 2007 and fell to 90 where it distributed for four months. It broke downwards again in August and began to accelerate lower from October. The Index found support in December and has posted a succession of higher lows since.

“This action is in contrast to the bearish sentiment towards the UK economy and the pound generally. The fundamental economic condition of the country is still deeply troubling but we should not forget that currency trading is a relative value endeavour. It could be argued that the pound became undervalued relative to its main trading partners too quickly and that rather than the pound being strong, other currencies are now getting weaker.

“If we accept the proposition that the pound is bottoming, then foreign investors looking at potentially making relatively long-term investments in Europe could justifiably start looking at the UK as a preferred destination.”

Source: Eoin Treacy, Fullermoney, May 18, 2009.

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