Friday, October 07, 2005


The British Pound Leading The US Dollar?

Asia Times Online had this quote this morning. "'What deflation is, is falling prices precipitated by a credit contraction, by the inability or unwillingness of lenders to lend and borrowers to borrow ... But, for now, a superabundance of money and credit is financing a leap in asset prices across markets and time zones." Jim Grant, Grant's Interest Rate Observer."

"We noticed this comment about the British economy by Anatole Kaletsky, 'The British economy today is struggling against four powerful headwinds: an oil shock, a downturn in the global business cycle, a decline of consumer confidence linked to high interest rates and weak housing, and a loss of control by the Treasury over Britain's public finance. And these headwind forces are likely to intensify, rather than weaken, in the year ahead."

"A great summary of where the US economy is likely to be very soon, if not already there. But because the UK is ahead of the curve, does it make the pound more vulnerable going forward? If Kaletsky's suggestion that the Bank of England may need to prune interest rates back to 3.5% next year proves prescient, one would expect the pound to react badly relative to the rest of the package."

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