Will the Olympics Strengthen the Pound?
With the Olympics about to begin, here's how to trade the games.
Get your games on. The London Olympics are almost here, and among other things, that means tourists and more tourists in need of British pounds.
But don't expect the currency to get a major lift, say the strategists at Barclays Capital. Based on local currencies' responses to past extravaganzas on this scale, they say any boost the pound receives will be minor, and temporary.
Sure, tourists will need the British currency, and they will be buying souvenirs and eating and who knows what else. But in a note to clients, BarCap predicts that "the additional flow is likely to be tiny relative to the daily volumes." Also, British exporters may raise their prices to greet the Olympic visitors, but "we find no evidence of a country’s terms of trade being boosted by the Olympics," the strategists say. And they argue that even if the economy gets a lift from the games, it will be temporary at best.
So should you sell the pound? Not exactly.
"The Olympics are unlikely to be an important driver of GBP in Q3," the strategists say. "Rather, we continue to expect EURGBP to depreciate on the back of the ECB’s more aggressive loosening bias than the MPC, as well as elevated concerns about the speed of progress on the euro area debt crisis."
In other words, don't expect the games to lift the pound. But the European debt crisis, and falling interest rates on the Continent, will keep the euro limping, and that could be a trading opportunity.
Let the games begin.
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