The British pound sterling is currently struggling to hold its value, despite the good news out of the Euro zone that Greek debt talks are nearing an end. The pound had a minor rebound on Monday, January 23, 2012, but experts expect it to give up ground soon. The Bank of England is coming to some conclusions in the near future that probably will include a need to increase monetary support. There is also talk that the BoE will ask to expand the Asset Purchase Facility up above the currently agreed upon 275 billion pounds. This is because there is an increased risk that the inflation rate within Great Britain will rise up above the previously estimated 2 percent.
The pound has shown some strength, however. On the 23rd, the pound gained quite a bit of ground in relation to the United States’ dollar. The pound climbed to a two week high of 1.5582, but this appears to be its resistance level. After reaching this high, the price evened out at 1.5550. This was still a vast improvement over the European trading day opening level at 1.5515.
Once the U.S.’s trading day began, the pound took off. At the time of writing this, it had broken free up above its resistance level that had previously been established. The pound was at 1.5592 and climbing in value without signs of slowing.
Still, the Euro seems to be the better investment right now. Because of the good news expected to come out of the Greece discussions, the Euro has climbed about 0.80 percent over the course of the trading day within the U.S. Despite the good numbers that the pound sterling has posted, at this time, it has only risen about .11 percent. Still, both of these currencies are a good investment because of the upside potential.
The U.S. stock market has responded to the European market as well. At the time of writing, both Dow Jones and the Nasdaq were up in value. This might be going on because of the fact that the dollar is currently undervalued because of institutions finally investing in the Euro. This will most likely go on for a while before the dollar starts to correct itself. But this will probably not affect stock prices too much down the road. When the dollar begins to recover, stocks within the U.S. will still be undervalued and will continue to attract more investor money.
By: Richard Sobin.