The UK is tightening fiscal policy while the CB is enacting QE. The market thinks that this will substantially weaken the pound, is that the correct logic

no. but drives short term portfolio shifting and specs

or is QE not real money printing and the tight fiscal is the real force to be reckoned with?

yes. but takes longer to bite.

I’m just wondering if the mkt is getting positioned the wrong way based on faulty logic. Any thoughts?

totally agreed! the trick is timing and vs what currency.

the euro has it’s own set of deflationary forces already in place.

the dollar looks over sold against something based on wrong way qe betting.

the pound selling has to be against something.

the only currency left is the yen, which may be where the flight to safety is going. Shorting the yen has also been the widow maker- more reason to believe it’s over bought.

And their trade flows aren’t so positive any more, and they have been sporadically selling it probably vs the dollar, adding to supply. And the prospects of meaningful fiscal tightening in Japan seem less than the UK, euro zone, or even the US.

so the home run may be the yen against the pound.

the other flight to quality currencies have been the commodity currencies which could correct substantially. The $A looks particularly over valued based on anecdotal purchasing power parity. a diet coke is $3 for example, but they are China’s coal mine.

again, it will be about timing.

if the pound does start firming against the yen fundamentally, which it should, it can go for a long time, so it’s probably not worth trying to call the exact bottom.