Sterling poised for another collapse?

To read the currency analysts you could be forgiven for thinking that the UK was in the vanguard of economic recovery and not drowning in debt, crashing house prices and a government crisis.

Let us face facts, $1.60 sterling is also bad news for this weak and failing economy which has government debt of over 100 per cent of GDP and the mortgage debt at over 350 per cent. UK house prices are still falling and still falling fast.

Political instability

The UK economy is contracting at its fastest pace in a generation with no end in sight. Even the Mother of Parliaments is being exposed as a bunch of incompetents who can not successfully fiddle an expense account.

But fear not, $1.60 sterling can not last and it will not. The mechanism for its demise is already written in the stars.

As the US stock market bear market rally goes bust it will rally the US dollar. This is precisely what happened last autumn, and there is no reason to believe that such recent history will not be repeated.

So the bankruptcy of General Motors is also going to be curtains for the pound, or at least flag up the obvious end to this rather silly rally in the currency of a country whose economic prospects look dismal, and even worse if the currency stays over valued.

$1 sterling

In the mid-70s sterling dropped to $1 or 1:1 to the greenback, and there seems little to prevent it heading back to that level again. Indeed, it would be hugely beneficial to UK trade and inward investment if that happened, and without the constraints of the eurozone that is what will happen.

What on earth do global investors think they are doing buying sterling now? Only last week S&P put the AAA-rating of the UK under review.

This new optimism about sterling really is a triumph of hope over experience and the young currency traders ought to take note, as well as any investor foolish enough to think that sterling has further to rise. It is heading for a big collapse.