Sterling crisis "claptrap"

graeme at 5:01 a.m. Tue 02 Mar 2010

FT Alphaville had a great quote from HSBC FX Research on the supposed prospects for a “crisis” (i.e. a drastic devaluation) in sterling exchange rates.

There is no doubt the UK data is weakening a little more than expected and more than expected compared to the eurozone and the US data. However, the talk of a GBP crisis seems like hysterical clap trap.

Currencies are a relative concept. So who is the UK and GBP going to have a crisis against – the euro? The analysts that are putting the GBP crisis view are the very same analysts who seem to be simultaneously predicting the break up of the euro and a GBP crisis whilst only last year telling us the USD was finished and losing its reserve currency status.

I fail to see who this golden child is that GBP will have this crisis against. I get very worried when I find that I am the voice of reason. Ok let’s indulge in fear and assume a hung parliament – well some economists argued in a recent tit for tat letter that to tighten fiscal policy too soon would be a disaster for the UK economy. Well a hung parliament removes that risk. Of course if the UK goes into a double dipper whilst the whole world recovers, then GBP would fall and the export sector would boom. Is that a crisis or the normal transmission mechanism in action?

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