Long/Short Investments
0
All posts from Long/Short Investments
Long/Short Investments in L/S Equity: Valuation and Ideas,

​How Much Lower Will The British Pound Fall?

Outside of a recent Brexit trade, I’m not a forex trader, as it’s not something I study in any depth. However, with the GBP/USD dipping below 1.3000 – lows not seen since the mid-1980’s – it makes you wonder how much lower the pound could feasibly drop. The Bank Of England’s rate cut and easing plans are mostly priced in, with the upcoming rate cut set to usher in the lowest mark its been in its 322-year history. But you have to believe that the British government would not prefer a further drastic drop in its currency.

Part of the philosophy behind extracting itself from the European Union was to protect jobs for native workers. But at the same time, the more the currency drops the cheaper the UK’s labor force becomes, with wages and standard of living falling on a relative basis. As a result, I would expect the BoE to moderate its measures to protect against a depreciating pound beyond a certain point.

But the current scenario in the UK makes you wonder whether 1.4000 is truly more likely than 1.2000.