Before moving on, I will appreciate it if you consider that this view is strictly an opinion and my view. So, it's not mandatory or obligated to happen in this manner. This is how I see the pound can move and if all the stars are aligned here, then we may be in the perfect spot for the great long in the quid !!
The micro side of the UK is still discussing Brexit apart from the omnipresent covid and macro inflationary aspect that we are witnessing which is also creating jitters in the bond market across the world.
Now, with the US passing infrastructure bill and DXY which has been a clear winner of 2021 on the back of all fundamental factors only goes to show you the authority and dominance of the FEDERAL RESERVE OF THE UNITED STATES. However, history shows that it takes almost 12 months for the market to react whenever there is a big decision that is taken by the central bank during times of crisis.
Hence, the M2SL money supply itself shows that there has been a 35% amount of extra money printed in the last 18 months. this sort of increment happened in the last 5-6 years in the money supply area. Hence, too much supply of one currency will erode its lustre. Apart from this, the equity market of the US has been relentless.. SPX, NDX, US30, US2000 / IWM has been trading at record levels along with currency appreciating in the same direction and this will make US attractive with US10Y heading toward 2% where its currently at 1.65% while GB10Y is at 0.96% circa. whereas FTSE100 hasn't even been able to recover/cross pat from its pre covid highs.
Now, it begs me to imagine what sort of unconventional things the US is doing to stay at top of its own created game of monopoly. So, now in order to keep doing this and still be on the top, the FED will find a way to devalue the already elevated dollar which in essence would be perfectly fine with them because with the help of lower dollar, again their equity prices will head higher and at the news od tapering, the market has already pushed the dollar to around 4% in the last 4 months. Hence, it's a matter of time before the big liquidation of the dollar will take place and that could save the risk assets and prove many wrong once again who claim to have a market crash thesis.
The only reason I don't think FED will allow the market to crash is because of the volume and participation the market has witnessed during and post-pandemic.
Now, taking into consideration the UK aspect, there have been talks of reducing asset purchase/ tapering along with raising rates to curb inflation. Also, the value of the quid has been in a range of 30 cents post-Brexit vote since 2016. Nevertheless, volatility in 6B1! has increased and with optimistic BOE and positive Brexit news, it has almost everything in its court to rally. Along with this, a dovish fed or depreciating dollar would add fuel to the fire.
Overall, GBP is bound to head higher in the coming months.
The micro side of the UK is still discussing Brexit apart from the omnipresent covid and macro inflationary aspect that we are witnessing which is also creating jitters in the bond market across the world.
Now, with the US passing infrastructure bill and DXY which has been a clear winner of 2021 on the back of all fundamental factors only goes to show you the authority and dominance of the FEDERAL RESERVE OF THE UNITED STATES. However, history shows that it takes almost 12 months for the market to react whenever there is a big decision that is taken by the central bank during times of crisis.
Hence, the M2SL money supply itself shows that there has been a 35% amount of extra money printed in the last 18 months. this sort of increment happened in the last 5-6 years in the money supply area. Hence, too much supply of one currency will erode its lustre. Apart from this, the equity market of the US has been relentless.. SPX, NDX, US30, US2000 / IWM has been trading at record levels along with currency appreciating in the same direction and this will make US attractive with US10Y heading toward 2% where its currently at 1.65% while GB10Y is at 0.96% circa. whereas FTSE100 hasn't even been able to recover/cross pat from its pre covid highs.
Now, it begs me to imagine what sort of unconventional things the US is doing to stay at top of its own created game of monopoly. So, now in order to keep doing this and still be on the top, the FED will find a way to devalue the already elevated dollar which in essence would be perfectly fine with them because with the help of lower dollar, again their equity prices will head higher and at the news od tapering, the market has already pushed the dollar to around 4% in the last 4 months. Hence, it's a matter of time before the big liquidation of the dollar will take place and that could save the risk assets and prove many wrong once again who claim to have a market crash thesis.
The only reason I don't think FED will allow the market to crash is because of the volume and participation the market has witnessed during and post-pandemic.
Now, taking into consideration the UK aspect, there have been talks of reducing asset purchase/ tapering along with raising rates to curb inflation. Also, the value of the quid has been in a range of 30 cents post-Brexit vote since 2016. Nevertheless, volatility in 6B1! has increased and with optimistic BOE and positive Brexit news, it has almost everything in its court to rally. Along with this, a dovish fed or depreciating dollar would add fuel to the fire.
Overall, GBP is bound to head higher in the coming months.
