(This is an excerpt from an article I originally published on Seeking Alpha on July 8, 2013. Click here to read the entire piece.)
Last week was a great week of economic news for the United Kingdom. The apparent economic improvement seems to be unfolding just as Mervyn King seemed to suggest in his final appearance as Governor at the Bank of England’s (BoE) Inflation Report almost two months ago. However, this news was drowned out by the much larger upward momentum that has carried the U.S. dollar index to a major breakout. This muffling is quite similar to the way the market ignored the positive news coming out of May’s Inflation Report for almost three weeks before the British pound (FXB) finally rallied (and swiftly!).
This time around, an additional downward catalyst came from within. New BoE governor Mark Carney threw buckets of ice water on the encouraging economic reports by aiming a healthy dose of jawboning at rising interest rates.
First, the bevy of economic news from last week.
{snip}
On July 17th, the minutes from last Thursday’s decision from the BoE’s Monetary Policy Committee (MPC) should reveal whether or not Carney specifically argued for more stimulus. However, the BoE came up with a trick that was just as effective in generating the desired market reaction. {snip}
{snip}
Given the steady improvement in the UK economy, I once again think the sell-off is way overdone. I hate to argue against the market, but in this case, I am compelled to make an exception. {snip} The dollar’s persistent strength is by far the dominant theme in foreign exchange and all analysis must start from this reality.
Source for charts: FreeStockCharts.com
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on July 8, 2013. Click here to read the entire piece.)
Full disclosure: long the British pound