24.07 - is it over for dollar?
Pound is stable as Bank of England issues a statement on its future.
As we all know, Russia hasn’t been in the best situation lately. Ruble lost almost entire value and the economy of the country fully depends on oil and dollar which haven't been so stable lately. So now it seems that Russia wants to take matter into its own hands as Russia is no longer one of the largest holders of American bonds, although it used to occupy 15th place out of 33 largest holders. So, what's the matter?
Right now Russia own about $14.9 billion worth of bonds. The number used to be around $50 billion. As ironic as it is the largest holder of American bonds is China that owns about $1.20 trillion worth of bonds. So, why selling the bonds now? Well, we think that this has nothing to do with the political climate in the world as Russia is one of the biggest players in the world and can simply change the situation in its favor when needed.
We think that the main problem here is the fact that American bonds can simply shed a lot of its value in the blink of an eye. Just like dollar this resource is now very unstable, so it is better to sell it now when it is on the high point of a sort than to wait for another peak that can take a lot of time. Also, Central Bank of Russia is afraid that the new package of sanctions can deny Russia the possibility to sell bonds.
But that means one thing – this is the time to sell the bonds. For all the countries. In order to make a profit that what needs to be done right now. Not the entire packages, of course, but at least some of the papers threaten to become dead money very soon. Russia sells the bonds and the countries that look up to it can simply decide to do the same. The selloff will hit dollar. So, in case the greenback suddenly starts to lose value we will look for the bond selling in the first turn. Only after that we will look at oil prices and political statements made by Trump.
Pound is of a big interest for us right now. It has less than a year left before Brexit and is still fighting for high positions, although the trust of investors is somewhat lost for the British currency. Although now the situation can change for better and we have to say it – it simply must change for better as there is a lot of need for a strong asset beside dollar in the world. Traders are getting visibly tired from the jumps of the greenback and the attention is shifting to other assets. And we don’t see any reason why pound can't take all of that attention or at least a part of it.
Central bank of England has conducted a research that mainly focuses on the middle performance by the pound. On that basis a prognosis was made. And it seems that is we are not thinning that pound is going to fail and/or perform spectacularly but will have a medium performance, the economy of Great Britain along with post-Brexit pound will show strength.
Although here it is important for us to note that the numbers and statements provided by the Bank of England are not 100% promising us a bright future for pound, but simply suggest that it is possible for GBP traders to have business-as-usual situation after May 2019. But what's really interesting that after the statement was made pound didn’t exactly move. Currencies are known to have better daily performance in case a positive prognosis is given. But in pound's case once talks about Brexit emerge it lays low and performs very stable.
Moreover. In case there are obstacles on the way to Brexit, pound grows. That was the case after Brexit Minister of May's office quit and after Boris Johnson left he seat. So, it is no wonder that talks about good pound's performance after Brexit didn’t pick the pound.
Trading GBP after Brexit is going to be fun, although there are hopes for peaceful transition.
- by Anna K.