Exactly 5 months ago we recommended on this blog (Can the Bank of England save the Pound- Dec. 20, 2009) to short the Pound versus the US$. It turned out to be a good call as the Pound went from 1.60 to 1.44 currently. Is it time to buy it back?
Yes. The Pound will rebound to 1.50 versus the US$. Even though the Conservative party of David Cameron managed to barely form a government and the UK is not an example of fiscal policy 'fitness'- the fiscal deficit is 11% of GDP- the fact that Britain is part of the European Union but not part of the Euro area is short term positive for its currency. Elections uncertainties have been lifted. Already the new government has announced austerity measures that should make Britain a role model in Europe.
The Pound is now trading around 8% below its 200- day moving average, sign that it is oversold.
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