Monday, May 14, 2012

Forex Traders Rotating Towards the GBP

In Forex trading they like to say that for every winner there is a loser.  Currently, the UK Pound appears to be one of the big winners at the Euro’s expense.  At 0.7982, the EURGBP has traded to its lowest levels since 2008.  Even against the US dollar, the GBPUSD has bucked the overall safe haven buying trend of May, as the pair has formed solid support just above 1.6000.

So what’s driving the demand? reports that part of the Pound’s recent success is due to it receiving a greater allocation of safe haven funds its way.  As a result, safe haven buyers that have been exiting the Euro for greener pastures, are becoming more and more drawn towards the Pound. The question though is whether the current rotation towards the Pound is based on choice, or simply a lack of options? From
According to Ian Stannard of Morgan Stanley in London, the UK economy is not supported by brilliant fundamentals, but the current safe haven status is due to the increased political uncertainties in the Euro-zone. He also added that the pound has an advantage over other safe haven currencies like the Swiss Franc because the asset market is more liquid. He warned that the strong pound is likely to hurt exports hence the advance might backfire.

Most traders are choosing the pound as the Swiss Franc which was the choicest in 2007, has been held under the 1.20 cap set by the National Bank. This is despite Britain’s economy falling into second recession since 2009 due to the spending cuts proposed by UK Prime Minister David Cameron. The UK economy is expected to expand by 0.6 percent while the euro region is expected to contract by 0.3 percent. Five countries in the euro zone have gone under recession ranging from Greece to Netherlands  Read more
What do you think?

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