Cable as good as it gets
GBP fell heavily during the financial crisis as the turmoil changed
investors’ long run perspectives of the UK and altered their perception
of the UK economy and economic policy. However, we consistently
argued the UK and the US are in a similar economic position and there
is no reason why GBP should deviate massively from fair value against
the USD. Cable has now corrected its excessive undervaluation.
Another reason GBP-USD should not strengthen materially is that such
a move would likely be part of a generalised USD sell off. It is very
likely central banks would intervene to stop a destabilising USD fall.
The last thing the world needs is another leg to this crisis led by the
USD.
No upside for the yen
Recent yen weakness has been partly based on the recovery of risk
appetite. However, the yen started to sell off before markets began to
recover, and its recent softness has been driven by the dire state of the
Japanese economy.