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Is the British Pound Headed to 2.10?

By DailyFX Updates | July 24, 2007

The slope of the rally in the British pound has been nothing short of impressive.  Over the past month, the currency has appreciated from 1.9650 to 2.0650 (1000 pips) against the US dollar with virtually no retracement.  Many people have argued that rate hike expectations are behind the move, but if that was truly the case, then the less hawkish voting record from the most recent monetary policy meeting should have put a dent into the currency pair’s rally. 

But instead of doing so, the GBP/USD pressed forward, hitting a new 26 year high on a near daily basis.  The interest rate curve has been mostly unchanged since the beginning of the year.  If anything, the front end of the curve has become flatter.  Even though 6 percent is still baked into the markets, the “real” driver of the latest wave of pound strength is merger and acquisition flow.  Flush with cash, foreign governments are on a buying spree and theUK has its doors wide open. 

Some people may have forgotten that over the past few years, the UK has been one of the biggest beneficiaries of US protectionism.  Remember the Dubai Ports Deal and the CNOOC’s bid for Unocol?  Both were blocked by the US government.  In an environment where the US economy is just struggling to stay afloat amidst the problems in the sub-prime sector, US protectionism has contributed to dollar’s demise against the British pound.

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Topics: DailyFX.com Updates |

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