Sterling is no longer a safe haven Ten Key Reasons Why a Sterling Crisis May Be Looming In 2013: The Year of the Black Snake

Hedge funds are selling more pounds than they are buying – and speculators are heading for the exit


Sterling dropped to a seven-month low against the dollar at one point on Monday. Photograph: Alamy

Sterling‘s days as a safe haven currency are over for now. Hedge funds are selling more pounds than they are buying for the first time in five months. The speculators are heading for the exit.

The diminished status of the UK currency in the eyes of international investors was illustrated by the reaction to the weekend’s hollow words about currency manipulation. Two currencies took a thumping when trading reopened on Monday: the Japanese yen, which is being deliberately depreciated by Tokyo, was one; sterling, which dropped to a seven-month low against the dollar at one point, was the other.

To be sure, there will be good trading sessions for the pound, and Wednesday may be one of them if the latest unemployment figures show a fresh fall in joblessness and the minutes of the Bank of England’s monetary policy committee’s February meeting suggest no hurry to give the economy a fresh stimulus.

But the smart traders will sell into any rally, knowing it is unlikely to last. That’s not just because the outgoing Bank governor, Sir Mervyn King, made it clear last week that he favoured a cheaper currency in order to help exports. Nor is it because King’s successor, Mark Carney, has hinted that he will take an even more relaxed approach to hitting the government’s 2% inflation target than the current regime. These factors have certainly done nothing to provide support for the pound but the selling had been occurring before King or Carney opened their mouths.

Nor, for that matter, is the sell off due to a sudden reappraisal of the UK economy’s strengths and weaknesses. The prospects for rapid growth in Britain look poor, but they looked poor a year ago when the hot money was flowing into London and all the talk was of sterling as a bulwark of stability. Some analysts say the threat of one or more of the credit rating agencies stripping the UK of its AAA status has led to the smart money getting out well ahead of any announcement, but this sort of talk has been around for months.

Instead, the explanation for the pound’s fall is simple: the negative factors depressing the value of other currencies have gone away leaving the negative factors affecting sterling evident for all to see. So while few wanted to take a punt on the euro a year ago when it appeared to be on the brink of collapse, the soothing words of Mario Draghi have removed that threat, at least for the time being. A second risk, that the US would stumble off the fiscal cliff, has also been removed, as has a third: a hard landing in Japan.

Investors have not suddenly woken up to the idea that Britain is a flat-lining economy with a twin deficit problem. They have known that for some time. The difference is that a year ago there were other more pressing things to worry about. Now there are not. That makes the pound a big sell.

Ten Key Reasons Why a Sterling Crisis May Be Looming In 2013: The Year of the Black Snake

It is now common knowledge that the global financial markets have begun betting against sterling in 2013, the Chinese year of the “Black Water Snake.”  The Black Snake is supposed to bring unexpected changes, instability and changeability. That is why it is so important in the year of the Snake to plan everything beforehand, and to evaluate adequately before taking any actions.  One needs to be more careful and cautious than ever this year!  It is in this spirit that the ATCA Research & Analysis Wing and the mi2g Intelligence Unit have been evaluating the situation in regard to the British pound in 2013.  

The British pound has declined for a fourth week in a row against the euro in the week just ended, its longest downward streak since September last year.  Sterling is at a 15-month low against the euro.  Of the 10 developed world currencies tracked by Bloomberg through its correlated weighted indices, the British pound is the second worst performer so far this year behind the Japanese yen.   

Ten Key Reasons for a Potential Sterling Crisis in 2013

click to find the 10 reasons


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