Exit Strategies Expose Pound Weakness

Both the Federal Reserve and the ECB began moves to soften the stimulus actions – the start of an exit strategy out of the crisis. This doesn’t happen in Britain. Britain still suffers from a bad data – and this leaves the Pound behind – again.

In the monthly rate decision there was no surprise about the rate – European Minimum Bid Rate remained unchanged at 1%. The real news came in the press conference held by Jean-Claude Trichet:

Image credit: tetowawki on Flickr

Trichet began easing the stimulus means that it used with banks. Here’s a quote from Bloomberg:

“The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past,” Trichet said at a press conference in Frankfurt today after the ECB kept its benchmark interest rate at 1 percent, a record low. “Liquidity will remain extremely abundant for a large number of months to come.”

Also in the US, that is still suffering from a terrible job market, and a big deficit, recession is officially over, and also Ben Bernanke began sending his troops home, very carefully:

The Federal Reserve conducted a reverse repurchase agreement to test one of the tools for an eventual withdrawal of the central bank’s unprecedented monetary stimulus while stressing that the actions themselves don’t represent any change in policy.

In the meantime, Britain is still in recession, also in Q3, as confirmed last week. The Pound got another reality check today, A Services PMI fell back instead of rising.

The Pound gave up some of its gains of the past weeks. GBP/USD fell today from 1.6720 to 1.6560. Also, EUR/GBP rose on the Pound’s weakness.

I continue to state the Pound is too high. High hopes about the British economy, as expressed for example by Spencer Dale, isn’t backed by the numbers.

The Pound didn’t hit the ground yet. European and American exit strategy measures expose the Pound’s weakness. I believe it will lose more value.