Just a quick fundamental question from a newbie

[AspiringTrader.]

I was reading a 2 day old article just before and came across this..

The article was titled

Osborne Says He'd Approve a Bank of England Request for Monetary Stimulus

Here's the paragraph i'm confused with.

" The Bank of England kept up emergency stimulus and left its interest rate at a record low as officials debate whether to join a global push to pump more aid into the world economy. The pound rose to an eight-month high against the dollar this week following the decision, which came after official Adam Posen stoked speculation that the bank could loosen monetary policy as soon as this month. "

I was under the impression that Providing more stimulus and leaving interest rates at an already record low shows that the economy is still weak, but it states the pound rose to an eight-month high following that decision.

Or was it the later part of the paragraph where they had previously speculated the bank could loosen monetary policy as soon as this month that could have caused the pound to rise to an eight month high?

Or have i got something wrong here?

Any replies will be greatly appreciated,
Cheers

AspiringTrader.

 

[RandomOne]

I suspect that the issue is that there are several different processes going on at the same time and although the UK economy is still weak, the question is whether it is still a better bet than the US economy. Also the economy may be weak, but the view may be that increasing interest rates would send it into a futher recession and therefore damage the currency. The trick for the UK Government is now to slowly wean the UK off the monetary methodone slowly enough to not cause withdrawal symptoms.

 

[Martinghoul]

I think "officials" in the paragraph you have quoted was referring to the Fed officials, not only the BoE. Thus, the appreciation of the pound vs the dollar. Basically, the Fed has a bigger bazooka than the BoE.

 

[Black Swan]

Slightly off thread, but just pushing the debate along a touch, it's fascinating to witness the US of A constantly calling foul over the supposed currency wars that arguably (come on Martin..) the dollar singularly has created...

When the Euro was collapsing pre summer the world news was dominated by the story, now the dollar has collapsed...it's China, Japan, Australia, Euro-lands' fault...it's not the huge stimulus which has now bled right into the BRIC countries (who are also calling foul for other reasons) or the rumoured next round of fed Q.E. or that the US may be finished as the economic super power and the only weapon they have left is the dollar and..well..real weapons to support the dollar>oil war..

 

[RandomOne]

Good points, US will have to come to terms with no longer being the single most powerful country in the same way that UK has had too after the second world war when ironically the US helped force the dismantling of the British Empire in order to free markets and resoruces for themselves.

 

[Martinghoul]

Well, tbh, to me this is really all about China taking a p1ss... I know they have their reasons and all that, but they really have to share the love with the rest of the world. They're not doing it, so there's all this bickering over what little oxygen there remains in the econosphere .

 

[AspiringTrader.]

Thanks for the reply's guys.

Okay so i understand what RandomOne was saying that keeping rates and stimulus as is, can be viewed as a positive by managing the recovery of a fragile economy and in turn appreciate against another weaker economy(being the USD).

So could this part , " as officials debate whether to join a global push to pump more aid into the world economy." and being " Officials " possibly meaning the Fed depreciate the dollar by a possible round of Q.E?

Sorry for my ignorance on this, or if that last paragraph doesn't make sense.

just I'm still a newbie in the world of trading especially with fundamentals and i feel if i have a well rounded knowledge with fundamentals and be able to interpret financial articles a lot deeper like you guys can and hopefully give me some sort of edge.

Cheers,

AspiringTrader.

 

[Martinghoul]

AT, point is that while the BoE is still debating "whether to join the global push", the mkt perceives (whether rightly or wrongly) that the Fed is spearheading this effort. Hence, GBP appreciating vs USD. Again, solely by virtue of being the best looking horse at the glue factory, so to speak. So you're, basically, correct.

 

[AspiringTrader.]

Thanks MG and everyone for your replys.

This really helps a lot.

Cheers,

AT.

 

[RandomOne]

My problem with all this macro economic stuff is that is exactly how we got into this mess in the first place. After the market regulators had allowed the dotcom bubble to build up around 2000, the subsequent inevitable crash was averted by floating the world economies on a tide of borrowing from the east to allow the west to spend and buy their goods. This led the likes of the Fed to slap themselves on the back and say they had averted recession and kid themselves that a new era had dawned when they could avert such meltdowns in future. Trouble is that the markets got used to the easy money and no-one wanted to stop the party with the likes of Gordon telling everyone that boom and bust had been banished when in reality they had just lengthen the time period. With all the cheap money pushing house prices up everyone either felt richer if they owned a house, or believed they could be richer if they bought one. They therefore went on a spending spree thereby boosting the rest of the economy. Normally such increases would push up wage demands, but turning a blind eye to mass immigration kept that particular pressure at bay in all but the top jobs where performance related pay meant massive rises. Now they want us to believe that they can be trusted as they have learnt their lessons.

 

[Splitlink]

Well, tbh, to me this is really all about China taking a p1ss... I know they have their reasons and all that, but they really have to share the love with the rest of the world. They're not doing it, so there's all this bickering over what little oxygen there remains in the econosphere .

China is a nation that will do what it wants, when it wants. It is a totalitarian state, running on capitalist fuel. Heaven alone knows what it will come up with next but, whatever it is, we are not going to like it. The Americans are in debt to China by a staggering amount and, at the same time, they have a pegged currency. They do not give a fig how much they pay for their fossil fuels but we do, because every time the petrol price goes up it hurts everyone in the West.

China has us over a barrel because, in the final analysis, it has a military potential that no-one, not even the US, wants to mess with and military power has been America's last resort. That is no longer the case. The boot is on the other foot.

 

[Martinghoul]

Well, what can I say, Split? If things are the way you describe 'em, we in the West are well and truly f*cked indeed.

 

[RandomOne]

China does make USA seem like a paragon of virtue, but it also has its own problems.

First is that it appears to be a collection of states to some extent run by an ethnic group(s). Inside that group the real power is in the hands of the communist party and those they favour. All this potential division makes the country inherently unstable but they have managed to buy off the unrest with economic growth and jobs. However, if the good times ever stop things could get nasty. Even if they do manage to keep it going, people are going to realise eventually that they have everything except freedom and then they will demand that.

 

[Splitlink]

Well, what can I say, Split? If things are the way you describe 'em, we in the West are well and truly f*cked indeed.

China is not what Russia was. They are sharp enough to know that they have a terribly poor population that has to be dragged up into the modern world, come what may. I think that they will do that. None of the other poor countries have been allowed by the West to be anything but lackies.

I'm not pro-Chinese, BTW. I would be frightened of their potential but I won't be around to see it in full swing.