Forex markets have never been tolerant of emerging market economies running amok.
Keep that in mind when looking at the latest price action in the Great British Pound, Krona, Peso, which is continuing to get bashed (again) on Monday.
The latest being (via Reuters):
RTRS-STERLING EXTENDS LOSSES, FALLS UNDER $1.50 <GBP=D4> FOR FIRST TIME SINCE MAY 2009
One house which wasn’t shy to equate UK sterling with emerging market status on Monday was BNP Paribas. As the bank’s FX team noted:
Markets have focused on debt and deficit levels with sterling increasingly trading like an emerging market currency. Since November, the Gilt – Bund and Treasury spreads have widened, but the higher Gilt yield no longer provides sterling support as the yield differential increase is supported by the reassessment of the sovereign risk and not by better economic growth prospects.
While not quite as scathing a prediction as that pronounced by Mr Vince Stazione on behalf (but not officially in keeping with) of Mr Jim Rogers last Friday, it does imply some level of volatility for GBP in the days to come.
To wit, the latest International Monetary Market (IMM) data, which showed on Friday that market speculators were still building short positions in both sterling and the euro – much to the benefit of exchange traded US dollar futures, where net long positions rose to their highest level since September 16, 2008, according to the CFTC.
Reuters reported shorts in both euro and sterling, meanwhile, became increasingly one-sided, with net euro positions rising to 71,623 contracts, against a total short position of 104,351 contracts, and net sterling shorts rising to 62,884, against a total short position of 76,766.
The data, however, did refer to the previous week gone by.
In the interim, Marc Ostwald of Monument Securities commented the above could leave the euro ripe for a short-squeeze induced rally — especially in the event of a Greek resolution and continued GBP jitters.
Related links:
A little perspective on the euro? - FT Alphaville
The declining euro, pictorial edition – FT Alphaville
Vince Stanzione would like to recall “Pound Could Collapse Within Weeks” – FT Alphaville