In the last few weeks the British Pound has been strengthening against the Dollar much faster then other currencies. Does anyone have an idea why that is so?
Yes, that's right. You must consider that Sterling is a typical "carry trade currency". Markets expect rising interest rates in the U.K. faster than in the U.S. so it is logical to borrow funds in U.S. Dollar and invest it in fixed income securities in Great Britain. That generates a positive cashflow into British Pound Sterling.
But why did it start happenning in the last few weeks? US interest rates have been stable and low for a long time now.
The uptrend in GBP/USD is stable for a long time as well! A half year ago, analyst were talking about increasing fed fund rates for the fourth quarter! In my opinion these expectations have been disappointed in the last few months. On the other hand we saw rising interest rates in UK in November.
The Dollar has been losing a lot of value in the last 3 Months.I know Currencies are well known for Trending is this a gigantic move for the Currencies or are there always Currencies making these type of Trending Moves.
05 Jan 2004 16:08 Sterling storms above $1.80 as dollar crumbles By Christina Fincher LONDON, Jan 5 (Reuters) - The British pound surged above $1.80 for the first time in over 11 years on Monday as dovish comments from a Federal Reserve official put the beleaguered dollar under further pressure. The dollar's latest tumble came after Federal Reserve Governor Ben Bernanke said at the weekend there was little risk of a crisis stemming from the dollar's fall and no immediate reason to raise U.S. interest rates from 45-year lows. "Bernanke's comments were the catalyst for further dollar weakness but independent sterling strength came through as stops around $1.80 were taken out," said Adam Cole, senior currency strategist at Credit Agricole Indosuez. "There is a general feeling in the market that there is little to stop the dollar's fall." Sterling rose three-quarters of a percent to a high of $1.8069 <GBP=> in late London trade, bringing its gains to 14 cents in less than two months. Sterling is now at its highest against the dollar since September 1992, the month Britain withdrew from the European Exchange Rate Mechanism after losing a fierce battle with speculators. Sterling shed a quarter of its value in the five months that followed Britain's exit from the ERM but traded in a narrow trading band for most of the following decade, averaging $1.56. RATE FACTOR U.S. interest rates at just one percent have dented the appeal of dollar deposits at a time when the United States needs to attract growing sums of overseas investment to fund its current account deficit. "If the Fed does not see a weak dollar as an inflationary threat, it has little reason to raise interest rates and the trend of dollar weakness will continue," said Shahab Jalinoos, senior currency strategist at ABN Amro. The Bank of England holds its January meeting on interest rates later this week. The Bank raised rates by a quarter-point to 3.75 percent in November and the market is pricing in another hike early this year, although most analysts expect it to stand pat until February. Sterling pushed marginally higher against the euro, at 70.14 pence <EURGBP=>, but did not break out of its recent trading range. For most of the past year, sterling traded as a half-way house between the euro and the dollar but a raft of strong British data in recent weeks has allowed the pound to keep pace with its euro zone counterpart.