Cable's decline since the 1970s looks far from over
Repeats Wednesday's story without changes
July 3 (Reuters) -The pound's multi-decade decline since it began floating freely against the U.S. dollar in August 1971, circa 2.40 under Conservative Prime Minister Edward Heath, looks set to persist for many years to come.
In the run up to the United Kingdom's July 4 election politicians have avoided grand economic plans for fear of waking the bond market dragon after a 2022 crisis triggered by former Premier Liz Truss' unorthodox tax-cutting plans.
This episode also pushed GBP/USD to a record low at 1.0327 and jacked up mortgage rates.
However, FX traders should beware that since 1971 every Conservative and Labour government seen GBP/USD fall over their period of office. For example, cable dropped more than 9% when the Labour Party was last in power between May 1997 and May 2010. It is currently down well over 13% since 2010, when the Conservatives resumed office.
The expectation is for GBP/USD to eventually slump back below the 1.20 psychological level, half the value it was in August 1971, suggesting that traders are currently overly bullish about sterling ahead of the election, after which the currency has traditionally tended to fall.
For more click on FXBUZ
Long-Term Cable Chart: https://tmsnrt.rs/4bsNbWK
(Martin Miller is a Reuters market analyst. The views expressed are his own)
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