Jan 29, 2005

Rough Waters

I mentioned the won as being in the same boat at the yen a while back. Over the long run that should be true but this week they diverged a bit.
In contrast the South Korean won, another proxy for the renminbi, rose 1.3 per cent to a seven-year high of Won1,024 to the dollar as the central bank refrained from intervening.

The won strength also adds conviction to the idea that the yen will be strengthening shortly.

I see the GBP as the best currency to be short. Because of their weakening retail and housing market I expect them to start lowering rates soon.


  1. Hi Michael.

    Small comment on sterling. Christmas trading was very weak for retailers, except that that went via the net which grew.

    But I think the jury is out on the housing market weakening (as in reversing) or merely slowing down. Latest data show price rises. Stong UK labour demand working against house deflation, too.

    Finally, the last gdp data was stronger than anticipated. Probably need to weigh all that in the shorting decision too.

    Nice site, by the way.


    Rawdon (aka Alzahr)

  2. Alzahr,

    I agree with your points. It is definitely a bit early to say the trend has changed to GBP weakness or even with certainty that they are done with rate hikes.

    My feeling is that they are though. Their housing market with high valuations and a large proportion of floating mortgages creates a real risk and rate cuts when they come could be quite quick.

    Asian policy will also have a big impact on the currency markets this year. An end to Asian intervention in the dollar should relieve buying pressure on free floating currencies. It is tough to guage this buying pressure but I bet it was large.

    So this leaves me waiting for signs that some of the events I am looking for are happening. Whether it shows up first in the currency markets or the economic data I don't know.

    Thx for the compliment.