Markets will always find a reason to be afraid. Not to miss important information is essential.
Threat of another divorce looms up ahead of pound while dollar gets ready for bachelor party
The devil is in the detail. Investors were frightened of rumors about another referendum on Scottish independence and Janet Yellen’s saying the Fed’s policy could be tightened so that the US economy wouldn’t overheat. So they completely overlooked some important factors. Yellen spoke of a very “modest increase” in interest rates. What’s more, she talked about things she wasn’t supposed to mention. If a national referendum does take place in Scotland, it won’t happen before 2024. However, Boris Johnson promised to uproot that idea. That’s the same old story: we try to get at the root, but we forget about the details. Where could Papa Carlo get a log if his fireplace wasn’t real?
The English are happy about reopening bars and restaurants and seem not to give a damn about Scotland’s eventual independence. So, the British pound won’t probably react either. The year 2024 is too far away to make them panic right here and right now. The Northern region accounts only for 8% of the UK GDP. Thus, the divorce might not be as painful as Brexit, even if British-Scottish relations started much earlier than the UK-EU ones. I’m afraid it’s Scots that may be annoyed after the divorce.
Everyone makes mistakes. Even Janet Yellen does, although her authority was unquestionable when she was Fed Chair in 2014-2018. The US Finance Minister shouldn’t talk about monetary policy even if he or she wants to. Yellen must have accumulated lots of ideas, but public press conferences and interviews are not for confessions.
– Father, I’m a sinner!
– Do you drink alcohol?
– I do. But could you hear my confession first?
Unlike Jerome Powell and his FOMC colleagues, Janet Yellen seems to live in the old world where the central bank does react to strong macro statistics and raises federal funds rate, thus taking away a cup of punch at the height of the feast. Why? Not to overheat the economy. However, life changes. The best way to synchronize with the world is to change faster.
In contrast to Great Britain, frightened of another divorce, the US is getting ready for a wedding: the economy’s reopening and fast growth. It buys presents and sends out wedding invitations. The Americans must be in a holiday mood, which they deserve after an efficient fight with the pandemic and fast vaccination. I know what it feels like. I enjoyed my bachelor party so much that I delayed my wedding. I hope the US won’t do that. The global economy won’t live that through.
Price chart of GBPUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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