British Pound: Largest Monthly Fall Since 1992

by: Grace Cheng August 29, 2008 | about stocks: EGB / FXB / GBB    

Grace Cheng

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With Friday being the last trading day of the month and the US Labor Day holiday coming up on Monday, currency flows have been rather disorderly, and the only exciting action in the forex markets has been another steep decline of the British pound against the US dollar. GBP/USD fell for the sixth consecutive trading day, and its weekly performance is negative too, posting the sixth straight week of decline.

If you measure the difference between the high of the first week of decline to the low of this week, it’s an enormous drop of 1850+ pips, or 9.2%, all in less than two months. In just the month of August, the British pound had its biggest monthly fall of 1660 pips against the US dollar since 1992 when George Soros “broke” the Bank of England! Talk of substantial rate cuts by BOE’s Blanchflower only served to exacerbate the bearishness of the Pound.

How low and for how long can the Pound fall? Is it too late to short it or is it a case of too much (drop) too fast? No one knows the answer; next week will be a crucial week for the Pound, given that the Bank of England will make its interest rate decision next Thursday. Cable’s nearest support is around 1.8175 then 1.8130.

The US dollar has turned out a mixed performance over the week: it closed lower against the Japanese yen, up against the Euro and the Swiss franc. Friday’s release of US data was on the USD’s side: University of Michigan consumer confidence index rose to 63 at the end of August, up from 61.7 at mid-month. The expectations index rose to 57.9 from 53.5 in July, and 56.8 mid-month. Both sentiment and expectation readings beat expectations, and not just that, they are at the highest levels since March.

And prior to the sentiment release, Chicago PMI for August also beat expectations, with the headline index at 57.9 (49.5 expected), the highest reading since June last year, following July’s 50.8. For a country that is in recession, signs of robust business activity in the Chicago region are welcomed.

Economic Calendar For Monday:

Australia current account 0130 GMT

Eurozone PMI manufacturing 0800 GMT

UK mortgage approvals, PMI manufacturing 0830 GMT

Fed’s Kroszner speaks in Buenos Aires on the financial system 1330 GMT

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