Investors are wrong, the British Sterling it’s a great asset to hold and to buy for the longer term, as it has even more upside than the Euro. Among the G10 currencies, Sterling has faced a lot of selling pressure, while a fundamental mistake in the valuation, as an asset of the British Pound, made by large Assets Managers and they are wrong.
First of all, other than Quantitative Easing, the Bank of England in the near future will find itself as an important financial institution, being forced to consistently expand the reserve monetary base of Sterling across financial markets, for some important factors, as the U.S. Dollar will be under pressure to provide more and more liquidity, either by fiscal stimulus, or by money market capital inflows, that would seems quite obvious that the U.S. Dollar needs to devaluate in order to stabilize funding needs and the U.S. Balance of Trade by improving export prices competitiveness.
On the other hand the Euro has been stepping up as a reliable source of liquidity in financial markets, notably with emerging market enterprises being able to finance themselves in the financial markets by issuing Euro denominated EM corporate debt, therefore making that a first since the Euro inception. In so far the global demand for liquidity sees a necessity for the U.S Dollar being softened by the availability of the Euro and the Yuan Renminbi, so that the Euro upside appreciation would at some point become uneconomic for Emerging Market enterprises as an alternative source of debt finance, while the sensitivity of the Euro Area economy to export and the trade balance as the primary growth engine, would otherwise require caution for a much pronounced Euro upside.
In this delicate balance, given the macroeconomic and geopolitical changes, the British Sterling would have naturally from here much space to appreciate, even more than the Euro being constrained by the exports factor, while also the British Pound represents an important asset to hold and to buy for the longer term, for the untapped economic potential of the UK economy, the absolute certainty about the stability and the existence of the British Pound in the longer term, the necessity of Sterling for being more available as a currency to transact with across financial markets, either in terms of goods and commerce trade, but also in terms of liquidity, in fact for Commonwealth countries and businesses being facilitated to trade in goods and commerce with the UK, requires also the availability for Commonwealth businesses to bool their imports/exports directly in Sterling through their local currency, without having to access expensive U.S. Dollars swaps. Becomes possible to argue that the BoE will have to fund a much larger expansion of the Sterling reserve monetary base, rather than absorbing money market capital inflows, therefore making the currency volatile in the exchange rate, the expansion of the reserve monetary base would allow the British Pound to gain strength and diminish the volatility of the currency.
UPSIDE CHANNEL COULD BE INTACT, THE RSI HAS BEEN APPROACHING A MEDIAN LINE TURNING POINT, HOWEVER, COULD BE POSSIBLE TO SEE THE BRITISH POUND GOING HIGHER FROM HERE. TECHNICAL INDICATORS DO HAVE A STRONG BUY CONSENSUS, AND THE BRITISH POUND CAN BE THE DEFINITIVE ASSET TO BUY, WHEN UK STOCKS DO TEND TO UNDERPERFORM, WHILE THE BRITISH POUND, CAN GIVE SUBSTANTIAL RETURNS
Summary:STRONG BUYMoving Averages:BUYBuy(9)Sell(3)Technical Indicators:STRONG BUYBuy(8)Sell(1)
|Buy: 8 Sell: 1 Neutral: 2|
|Buy: 9 Sell: 3|