February 2nd 2009
British Pound: It’s All Relative
Since the inception of the credit crisis, perhaps no currency has been beaten down more than the British Pound, with analysts bitterly divided about whether the currency will fall further. A lot depends on whether the British efforts to save its devastated banking sector are successful. The government has already moved to nationalize the Bank of Scotland, and is quickly moving to shore up the capital positions of other vulnerable banks. Experts point to the Pound's historic volatility, however, as an indication that investors have always fled, and will continue to flee the UK in times of uncertainty. Jim Rogers, whose partner George Soros famously "broke" the Bank of England in 1992, forecasts a bleak future, although his motives are questionable. Ultimately, the fate of the Pound is entirely relative, as is the case with all currencies. In other words, if investors suddenly changed their minds about the perceived stability of the Dollar and Yen, the Pound could quickly recover. Business Week reports:
As investors begin to renew their focus on the problems of other economies, the pressure on sterling may ease. The selling could turn to buying if investors suddenly decide they'd rather take a little risk to earn return, rather than watching their cash evaporate.
Read More: Playing a Rebound in the Pound