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Speaker 1: You're listening to Taking Stock with Bim Box and Kathleen

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Speaker 1: Hayes on Bloomberg Radio. He was just a wee lad

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Speaker 1: when the pound was as weak as it is today,

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Speaker 1: the pound trading at one twenty seven against the US dollar.

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Speaker 1: Douglas Borthwick is managing director and the head of FX

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Speaker 1: at Chapter Lane and Company and he joins us now.

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Speaker 1: Doug Borthwick, thank you very much for being with us

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Speaker 1: thirty one years. The dollar has not been this strong

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Speaker 1: against the British pound for thirty one years. What is

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Speaker 1: going on and what is going to happen? The last

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Speaker 1: time the sterling was this week was when I actually

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Speaker 1: came over to this country. Is rather astounding, and I

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Speaker 1: think there's a number of things that play. Obviously Brexit

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Speaker 1: is the main one. Today's move and what we've really

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Speaker 1: seen when we went to the one level was really

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Speaker 1: on the back of Tersa May, the Prime Minister putting

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Speaker 1: down her foot and essentially saying that to companies are

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Speaker 1: on their own, which I think came as a bit

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Speaker 1: of a shock to the financial services market, which makes

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Speaker 1: up around twelve of the UK economy at one point

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Speaker 1: one million jobs. So what this means is that when

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Speaker 1: it comes to the negotiation um all of the British

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Speaker 1: exit from Europe, what will happen is that instead of

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Speaker 1: financial companies being at the forefront and what it's called

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Speaker 1: financial passporting rights, instead it looks like trade is going

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Speaker 1: to be the main factor. What Tersa May also did

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Speaker 1: as she came out with the dates of when they

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Speaker 1: think that breaks will happen, when she'll actually pull Article

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Speaker 1: fifty and it looks like that's going to be by

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Speaker 1: a March of next year. So we've now got a

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Speaker 1: time frame of when things are going to happen. We're

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Speaker 1: also now seeing what's being prioritized by the British government

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Speaker 1: and I think that the market didn't really appreciate that today.

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Speaker 1: Well Hard Brex said, that's what people have been wondering about,

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Speaker 1: and great Bloomberg coverage of this today, one story pointing

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Speaker 1: out that Teresa May is taking a very different stance

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Speaker 1: than her predecessor, day the Cameron. But of course she's

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Speaker 1: the one who's you know, got to carry out the

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Speaker 1: quote unquote will the people and that's brags it. So

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Speaker 1: that is, but there's also two different types of strategies.

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Speaker 1: David Cameron was trying to go in there with a

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Speaker 1: strategy where he expected that Brexit would never pass, and

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Speaker 1: so he is a certain pitch. And then Theresa May

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Speaker 1: has the job where Brexit has passed and she'd rather

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Speaker 1: than having fluffing colors, she actually has its all the

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Speaker 1: cold hard reality. I think that that's a significant difference.

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Speaker 1: I think that Theresa May has a great challenge ahead

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Speaker 1: of her. I think that the market, though, if it's

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Speaker 1: trading today off of something that could happen in really

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Speaker 1: two and a half years time, it's probably a little

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Speaker 1: bit ahead of itself. And if you look at euros sterling,

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Speaker 1: over the past a couple of years, eurosterling has jumped

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Speaker 1: about twenty six percent, which is rather astounding if you

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Speaker 1: think of what's happening in the in Europe compared to

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Speaker 1: what's happening in the US. And that's really since about

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Speaker 1: the end of two thousand fifteen, euro sterling has gone

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Speaker 1: up to now levels that are astounding given the help

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Speaker 1: of the British economy versus the health of European economies. Alright,

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Speaker 1: so given a lot of this irrational behavior, Douglas Borthwick,

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Speaker 1: what's the best trade right now? Where would you be

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Speaker 1: looking yeah, I really do believe that you were. Sterling

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Speaker 1: is very much overdone and we're training around this point

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Speaker 1: eight eight level. Today. There's really two pieces of news.

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Speaker 1: One that there's a discussion that the e c B

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Speaker 1: is discussing tapering their rand stative easing. Now that article

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Speaker 1: saw the Euro start to charge higher at the same

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Speaker 1: time as Sterling was moving lower on the back of

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Speaker 1: the Theresa May comments. So you've had both legs here

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Speaker 1: being pushed in opposite directions, both knee jerk reactions off

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Speaker 1: of news that really shouldn't come as any surprise. The

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Speaker 1: news story regarding the e c B that they would

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Speaker 1: enter into taper before ending que That shouldn't be a

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Speaker 1: surprise to anybody. What would be a surprised as if

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Speaker 1: they actually tapered, they actually ended que and I don't

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Speaker 1: believe the ECB is anywhere close to ending QUI. So

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Speaker 1: we've had a big move today in the Euro on

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Speaker 1: the back of really some fluff news that has very

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Speaker 1: little resemblance upon reality today and then Sterling this move

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Speaker 1: lower as well. We know that the Brexit is going

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Speaker 1: to happen, We know that Sterling would probably be a

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Speaker 1: little bit weaker if anything though a weaker sterling should

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Speaker 1: be seen as a positive by every G twenty country

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Speaker 1: in the world, because every country in the world is

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Speaker 1: trying to have a weaker currency. Yeah, but that's what

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Speaker 1: I just found it. But that's what I thought. It

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Speaker 1: was interesting because it's almost as if the markets are

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Speaker 1: doing the work for central banks. Well, the market is

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Speaker 1: doing the work for sterling. It really so if you

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Speaker 1: think about the Japanese, they're doing everything they can to

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Speaker 1: weaken the end. In the U S we're doing quantitative

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Speaker 1: easing as well. It's an extent, but you've certainly see

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Speaker 1: quantity of using in Europe, you seen quantity of using

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Speaker 1: in the UK, quantity of using in Japan, all really

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Speaker 1: to stimulate the economy and weaken their currency as a consequence.

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Speaker 1: The UK doesn't really have to do that much quantitative

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Speaker 1: using anymore. All you need to do is say I

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Speaker 1: don't want to be part of a trade pack. And

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Speaker 1: you see your currency weekend, well, and of course it's

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Speaker 1: a big weekend, and I think that that's what I thought.

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Speaker 1: You look at the headlines on the Bloomberg and uh,

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Speaker 1: you know, one of the headlines is, oh my gosh,

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Speaker 1: handringing the pound is falling so low, but UK DOC

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Speaker 1: gauges hit simultaneous highs for the first time since nine Yes,

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Speaker 1: a very weak currency dug. Also, the economic data have

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Speaker 1: held up reasonably well since the Brexit. Certainly the negative

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Speaker 1: impacts may flow through. You could also say, well, Mark

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Speaker 1: Carney's out of the Bank of England. He hit it hard,

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Speaker 1: he said he would, and maybe that helped create confidence.

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Speaker 1: I think this is the other interesting part of this

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Speaker 1: equation though, that this is actually potentially just what the

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Speaker 1: UK economy needs now. But I can't imagine other central

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Speaker 1: bankers sitting around and saying, oh, this is terrible. Sterling

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Speaker 1: is weaker. Everyone is trying to weaken their currency at

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Speaker 1: least has been, and that's really been what quantity of

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Speaker 1: easing has been all about, and the UK found a

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Speaker 1: way to do it. It's it's happening. You're seeing the

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Speaker 1: economy not greater as people that has expected would actually

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Speaker 1: stay stable or even grow a little bit faster. Obviously,

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Speaker 1: any change to their economy or a GDP change will

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Speaker 1: be seen later on as Brexit reality comes into being,

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Speaker 1: But right now nobody knows if it's gonna be Brexit heavy,

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Speaker 1: Brexit light, you know, it's still very much on the

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Speaker 1: table and in the cards, and anything that Teresa made

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Speaker 1: right now is discussing really she has to pitch an

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Speaker 1: idea towards Europe. Now Europe right now they certainly would

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Speaker 1: like to have the British banking system in Frankfurt or

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Speaker 1: in Paris, and they're certainly pitching these ideas to these

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Speaker 1: financial companies. At the same time, London wants to keep

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Speaker 1: the financial companies there. So there's a lot of different

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Speaker 1: pitches we're hearing different color. All of it, I think

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Speaker 1: is just a strategy towards when we actually get to

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Speaker 1: the negotiating table, which won't happen until next year, all right.

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Speaker 1: So that gets put off is they we were talking earlier.

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Speaker 1: Maybe you don't know about, but we're talking earlier about gold.

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Speaker 1: And I was wondering if gold plays a role in

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Speaker 1: the currency market the way you see it. Well, if

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Speaker 1: if the story that came out earlier that the ECB

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Speaker 1: was looking to taper their clumsy of using purchases, obviously,

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Speaker 1: if there's less quantitivity to easing in the world, you'll

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Speaker 1: see the gold price take a hit lower. Uh. If

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Speaker 1: there's more quantity of us and you see gold start

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Speaker 1: to rallying, but it's good. Gold obviously moves up or

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Speaker 1: down based upon the markets perceived amount of currency in circulation.

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Speaker 1: So there's a lot of currency in circulation. That means

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Speaker 1: that there's more inflation. If there's more inflation, people would

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Speaker 1: rather their own gold because they see that as a

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Speaker 1: way to keep their assets in one piece. So if

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Speaker 1: you see a tapering of one city using if you

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Speaker 1: see the US start to raise rates, you'd expect to

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Speaker 1: see gold come off somewhe Well, of course we did.

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Speaker 1: We saw a gold fall through. It's the lowis in June.

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Speaker 1: Alert Amester yesterday the Cleveland Fed saying, hey, don't even

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Speaker 1: discount November. It's possible for rate hike. She would vote

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Speaker 1: for it potentially if the economy is strong. And then

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Speaker 1: Jeff Lackard followed through today, what is your bet there, Doug,

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Speaker 1: I think we'll see a rate hike in the US

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Speaker 1: by the end of the year. I think that that's

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Speaker 1: uh pretty much in the cards right now. But we

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Speaker 1: haven't seen the economic data yet between now and none. Okay, well,

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Speaker 1: and that well, they'll all agree the economic data are crucial.

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Speaker 1: Friday is the big jobs report. You want to Tune in,

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Speaker 1: start early, go around the clock on Bloomberg Radio Television.

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Speaker 1: Keep your eyes on the Bloomberg because that job's report

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Speaker 1: could be a major market mover as much or more

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Speaker 1: than never. Thanks to Doug Borthwick, Manager Director, head of

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Speaker 1: Foreign Exchange at Chapter Lane and Co. I'm Kathleen Hayes,

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Speaker 1: along with pim Fox movers and shakers coming up the

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Speaker 1: market clothes on taking stock. This is Bloomberg.