Lack of Direction from G-20 Meeting Triggers Rally in British Pound

The weekend ended in disappointment as the G-20 meeting yielded little concrete solutions to the financial crisis that is gripping the world. The G-20 nations did issue a statement basically blaming investors who “sought higher yields without an adequate appreciation of the risks.” A couple of directives from the meeting were a call for financial institutions to keep more capital and an increase in surveillance of these firms. As far as the global recession was concerned, the G-20 basically left it up to the individual central banks to solve the problems.

 

 

The weekend ended in disappointment as the G-20 meeting yielded little concrete solutions to the financial crisis that is gripping the world. The G-20 nations did issue a statement basically blaming investors who “sought higher yields without an adequate appreciation of the risks.” A couple of directives from the meeting were a call for financial institutions to keep more capital and an increase in surveillance of these firms. As far as the global recession was concerned, the G-20 basically left it up to the individual central banks to solve the problems.

 

British Pounds have reacted to the lack of news in a positive manner with a sharply higher trade in the overnight market. Traders attribute this rally to short-covering rather than new buying. Many traders had sold the British Pound last week in anticipation of a plan that would have helped the world economies to dig out of the deepening global recession. This plan was expected to be supportive to the U.S. Dollar since the consensus is for the Dollar to recover from the recession before the rest of the world. When the G-20 failed to deliver a plan, many traders bought back their positions, triggering a short-covering rally. Technically, the British Pound had also become oversold so it only took a little fundamental news to trigger profit-taking and short-covering. Look for this move to be short-lived as there is nothing to suggest the British economy is ready to turnaround. High unemployment, lower retail sales and sagging home prices are cited as the main reasons why the British economies recession is expected to deepen this year and into 2009.