The British pound outperformed both the US dollar and the Euro today thanks to stronger economic data. Rightmove house prices, money supply, BBA mortgage approvals and public finances all came out stronger than expected. This suggests that domestic demand remains robust while the housing market remains stable.
This stability may be one the main reasons why the Bank of England has not felt pressured to add liquidity in the financial markets. There has been a lot of talk that the Royal Bank of Scotland?s bid for ABN Amro could be in jeopardy after the recent credit problems. The fear is that the consortium extending the bid may have problems raising cash from investors who may be licking their own wounds after this past week?s troubles. If the bid is abandoned and no other buyer steps up to plate, this could be negative for the British pound in the near term for no reason other than sheer disappointment.
[B]Written by Kathy Lien, Chief Currency Strategist[/B]