Thursday, July 21, 2011

Royal Bank of Scotland: pound is undervalued

Currency strategists at Royal Bank of Scotland believe that British currency is, so it’s possible to invest in sterling undervalued in the long term looking forward to its steady appreciation. In their view, pound is 14% below its 10-year average in real terms.

The specialists think that the greenback is also cheap, while the single currency has become closer to its fair value.

The commodity currencies such as Australian, Canadian and New Zealand’s dollars, on the contrary, seem to be expensive though they keep getting support from the improving terms of trade. The most important question here is whether high commodity prices and strong export demand from Asia are structural or only cyclical factors.

RBS analysts think that in the longer term, if the world’s economic recovery gains pace pound will rise to the fair value versus commodity currencies. In the near future, however, state of the global economy is too uncertain and unsustainable for buying sterling.

daily gbpaud 17-10

Chart. Daily GBP/AUD

published by FBS Holdings © 2011