- Pound Tumbles as U.K. Bank-Bailout Plan Fuels Concern Recession Deepening (Bloomberg)
- German Investor Confidence Gains More Than Predicted After ECB Cut Rates (Bloomberg)
- Royal Bank of Scotland Will Be Guinea Pig for `Creeping Nationalization’ (Bloomberg)
"The government increasingly resembles somebody who is trying to give the kiss of life to a corpse.”
Vince Cable, on the current UK Banking Crisis
FX Trading – United Kingdom Needs a Savior Too
I’m not sure if you’ve heard, but today is the day Barack Hussein Obama gets inaugurated as the next President of the United States of America.
Anyway, considering the unity we’re told he will bring to this country, it’s only fitting that BHO arrives during such trying economic times. Will he be the savior this country has been continuously told he’ll be by the fawning media elites?
Regardless of President Obama’s innate skills, he has a tough road ahead. I’m not really sure why anyone would want his job.
And maybe UK Prime Minister Gordon Brown is asking himself that question: Why did I take this job…
We learned yesterday the Royal Bank of Scotland (RBS) will probably post somewhere near $41 billion of losses for 2008. In-line to be the largest annual lost by a British company, we also learned the UK government will up its stake in RBS to 70%.
Of course, the tremors rippled through the entire UK banking system. Talk is that a certain amounts of money will be required to be loaned out by RBS, albeit to “credit worthy” borrowers. This “creeping nationalization” as Bloomberg called it isn’t sitting well with investors.
How long ago was it when we were told that OLY US banks and the US economy were going to be hurt by the subprime fiasco? Just checking!
So like the United States, UK banks are dazed and confused and scurrying for refuge. And we’ve known the UK real estate market has been in a similarly crappy situation …
Commercial real estate value fell 15% in the fourth quarter. The last drop of that magnitude happened all the way back in 1987. Residential real estate hasn’t fared any better, with home prices having lost value in the last 14 consecutive months.
So having seen how things played out in the US, we can expect déjà vu from the UK. Inflation is coming down in a hurry. And so are Bank of England interest rates … And they’ll keep coming.
With the UK economy in the reeds, the outlook for their currency is muddy. You would think then that the outlook is similarly muddy for the US dollar since, after all, the snapshot I just conveyed exists within the US economic picture.
The key underlying difference, the one underpinning our predictions for the British pound to weaken versus the US dollar, is two-fold.
- The UK economy, government and the Bank of England are behind the curve set by the US economy, government and Federal Reserve.
- Substantial deleveraging of dollar-based credit continues … and it’s driving funds back into the US and the US dollar.
And speaking of the US dollar, it’s screaming higher today. Those in currency trading must be amped up about how this inauguration day is going to bring the country together – one, big, cohesive melting pot of hope and change. Hope springs eternal.