The pound is undervalued against the dollar and euro, and will probably appreciate over the next year after “near-term pain” from government spending cuts, according to State Street Global Advisors Inc.
The pound is about 15 percent below the level it should be against the dollar and 20 percent against the euro, said Collin Crownover, the Boston-based head of currency management at State Street, which oversees $83 billion in assets. The British currency may strengthen to $1.70 and to 80 pence per euro in 12 months from $1.58 and 88 pence now, he said.
“We are not saying there’s a fantastic story in the pound, but at least its fundamentals are looking better than the dollar and the euro,” Crownover said in an interview, citing the company’s value model. “The U.K. will be rewarded for its austerity measures, although there might be some short-term pain from fiscal consolidation.”
The pound lost 7.1 percent against the euro since the end of June and declined 6 percent against the dollar on speculation that Prime Minister David Cameron’s efforts to reduce the country’s record budget deficit will hurt growth. Conservative finance minister George Osborne will unveil details of the spending cuts on Oct. 20.
“Our view is that the austerity measures will have a milder impact on the U.K. economy than the market thinks,” said Crownover.
“Given the anemic growth in the euro zone outside Germany, it’s hard to justify the euro’s current strength. And its debt problem hasn’t gone away. If anything I would argue it’s getting slightly worse.”
The pound was little changed against the euro at 88.09 pence per euro as of 2:38 p.m. in London. It traded at $1.5828 from $1.5809 yesterday.
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The pound is about 15 percent below the level it should be against the dollar and 20 percent against the euro, said Collin Crownover, the Boston-based head of currency management at State Street, which oversees $83 billion in assets. The British currency may strengthen to $1.70 and to 80 pence per euro in 12 months from $1.58 and 88 pence now, he said.
“We are not saying there’s a fantastic story in the pound, but at least its fundamentals are looking better than the dollar and the euro,” Crownover said in an interview, citing the company’s value model. “The U.K. will be rewarded for its austerity measures, although there might be some short-term pain from fiscal consolidation.”
The pound lost 7.1 percent against the euro since the end of June and declined 6 percent against the dollar on speculation that Prime Minister David Cameron’s efforts to reduce the country’s record budget deficit will hurt growth. Conservative finance minister George Osborne will unveil details of the spending cuts on Oct. 20.
“Our view is that the austerity measures will have a milder impact on the U.K. economy than the market thinks,” said Crownover.
“Given the anemic growth in the euro zone outside Germany, it’s hard to justify the euro’s current strength. And its debt problem hasn’t gone away. If anything I would argue it’s getting slightly worse.”
The pound was little changed against the euro at 88.09 pence per euro as of 2:38 p.m. in London. It traded at $1.5828 from $1.5809 yesterday.
http://jodnet.blogspot.com
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