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Currency madness
Nov. 7th, 2008 07:35 amPeople who just hear the net change in currencies the following morning often miss some weird intra-day happenings. When the BoE announced yesterday's 1.5% cut in interest rates (an unwisely large cut in a single jolt, IMO) to 3%, all common sense dictated a fall in the value of the pound. For a start, why invest in sterling, the currency of a country that was significantly vunerable to an economic downturn, with higher expected inflation, than in the euro where, for the first time, the base rate was higher (the ECB only cut by half a per cent to 3.25%)?
The markets reacted accordingly, and initially pushed sterling down to below $1.5750. Then, within an hour, it shot up to more than $1.60. John Authers was clearly writing his column for this morning's FT at this time, because he tried to rationalize the increase in sterling's value. Trying to do so was a mistake. Sometimes things just aren't rational, and that's when money can be made.
Sure enough, over the next 15 hours or so, sterling sank to about $1.55 -- a reasonable fall given the BoE decision. You really have to forecast serious sterling weakness over the next six months, but falling commodity prices will alleviate the inflationary pressures --- for now.
One has to assume a further cut to 2% in the near future, which is both shitty news for my finances short-term but, potentially, v good news when inflation takes hold in two or three years' time.
The sad thing about the three-year prognosis is that there is no good outcome. Either it's a deflationary Japan-style depression or a UK 1970's style inflationary madhouse. I can position myself to do very well out of one of these (but badly if the other occurs), or slightly well whichever event takes place. But for the economy as a whole, it's horrible.
Labour held Glenrothes with an excellent majority. What a weird world it can be sometimes. Brown's total lack of charisma becomes a plus when the shit hits the fan!
I'm struggling with a depressive period at the moment. Will pull through, 'cos I always do. But it's hard. Once again, Zoloft holds out lots of attractions!
__________
The markets reacted accordingly, and initially pushed sterling down to below $1.5750. Then, within an hour, it shot up to more than $1.60. John Authers was clearly writing his column for this morning's FT at this time, because he tried to rationalize the increase in sterling's value. Trying to do so was a mistake. Sometimes things just aren't rational, and that's when money can be made.
Sure enough, over the next 15 hours or so, sterling sank to about $1.55 -- a reasonable fall given the BoE decision. You really have to forecast serious sterling weakness over the next six months, but falling commodity prices will alleviate the inflationary pressures --- for now.
One has to assume a further cut to 2% in the near future, which is both shitty news for my finances short-term but, potentially, v good news when inflation takes hold in two or three years' time.
The sad thing about the three-year prognosis is that there is no good outcome. Either it's a deflationary Japan-style depression or a UK 1970's style inflationary madhouse. I can position myself to do very well out of one of these (but badly if the other occurs), or slightly well whichever event takes place. But for the economy as a whole, it's horrible.
Labour held Glenrothes with an excellent majority. What a weird world it can be sometimes. Brown's total lack of charisma becomes a plus when the shit hits the fan!
I'm struggling with a depressive period at the moment. Will pull through, 'cos I always do. But it's hard. Once again, Zoloft holds out lots of attractions!
__________
