The pound called a currency of a developing country


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Pound, the national currency of the UK, in recent times behaves like a currency of a developing country. To such conclusion analysts of Bank of America, excerpts of their report which leads CNBC.

The main reason for the change in the attitude of international investors towards the pound became a British exit from the EU, officially ended on January 31. Investors have become more skeptical about the pound, so his course became subject to much more volatility — the variability.

This is especially dangerous on the background of the growing national debt of great Britain, forcing the country to enter the debt market. Main problem of the British economy — double the deficit, analysts said. So is a situation when both the budget deficit and the current account of the balance of payments, which records receipts from exports and foreign investment, as well as the costs of imports and payments to foreign investors.

Twin deficits in the case, when faced with a country whose currency is not one of the major reserve, means a reduction in inflows to the local foreign exchange market. As a consequence, the corporate sector and the government is forced to resort to borrowing, or the Central Bank spends its reserves. In the current situation, foreign investors are ready to invest in British assets denominated in dollars and euros, because with a suspicion look on the local economy after Brexit.

The Bank of England had to spend reserves, selling them to importers, which leads to the strengthening of the pound. While monetary policy regulator, aimed at supporting the economy during the crisis, leads to low rates. At the moment, the key rate of the Bank of England is set at 0.1 percent per annum. This pushes investors away from assets denominated in pounds.

In the simultaneously combined result of two divergent factors: the lack of demand for the pound from foreign buyers and the presence of such a demand from the Bank of England. The pound is subject to large fluctuations, which is usually the case for currencies of developing countries.

The authors of the report recommend that investors play against the pound, opening short positions on the pound against the Euro, the Swiss franc and the yen.

Video, photo All from Russia.


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