The US dollar is not doing much against the Euro so far today as details of the Greek bailout continue to be negotiated, but is surging against the pound. Polls over the weekend show the Labour Party (i.e. "spend spend spend, print print print") is gaining lost ground in polls, when it was assumed the Conservative bloc would walk away with coming elections. In a world where fiat money is now treated as toilet paper, the currency market is not taking the news well. It is very important for Americans to keep an eye on Britain because effectively they are a mini US, without the global reserve currency as their "out" to run rampant with fiscal policy. [Dec 1, 2009: Morgan Stanley Lists UK Sovereign Debt / Currency as Potential "Fat Tail" Risk for 2010] I imagine when the day of reckoning comes to the UK, it will make Greece look like a minor sideshow. On the plus side, as this continues and the US is still considered a 'safe haven' despite running even more irresponsible budgets than the British, Americans will once more be able to afford traveling to the UK.
The global race to the bottom continues...
- Britain's pound took a battering on foreign exchange markets on Monday, falling more than 1 percent to 10-month lows against the dollar on worries about a coming election and its impact on the G7 nation's economy.
- An opinion poll published on Sunday suggested Britain's ruling Labour Party could remain the biggest party after this year's general election but without a majority in parliament. The prospect of such a result -- known as a hung parliament -- has rattled investors who fear that decision-making would become stymied, undermining a fragile UK recovery.
- The pound fell against the euro and weakened to an almost 10-month low against the dollar as polls showed that the U.K. may have its first minority government since 1974, hampering efforts to cut the nation’s record deficit.
- Sterling extended its decline against the dollar this year to 6.47 percent, and depreciated against all 16 of the most widely traded currencies as a poll showed the opposition Conservative Party has the smallest lead over Labour Party in more than two years. Elections must be held by June.
- Futures traders increased their bets that the pound will decline further against the dollar. “Political uncertainty means the risk of a hung parliament is increasing. You will need a government with a strong majority to push ahead with reforms that the U.K. needs. We are bearish on the pound.”