Pound Continues To Weaken Against Dollar And Euro

[Eddie_George]

Sterling has continued to weaken against the dollar and the euro on continued worries about the health of the UK economy.

Against the dollar, sterling fell to a seven-month low, and against the euro it was nearing a 15-month low.

The falls came after Bank of England policymaker Martin Weale said that sterling may need to weaken further to bolster the UK economy.

Currency speculators are also betting that sterling will fall, data shows.

Sterling fell 0.5% to $1.543, its lowest since 13 July, 2012. The euro was up 0.3% against sterling, making a euro worth 86.3 pence.

The pound has been weakening this year following some disappointing economic data and worries that the UK may lose is triple-A credit rating.

In a speech on Saturday Mr Weale said the currency may need to weaken further, helping to make exports cheaper and boost growth.

Last week, the pound suffered its biggest weekly loss since early June 2012 after a weak retail sales report for January added to worries about the economy.

The pound had already been under pressure since the middle of last week when the Bank of England quarterly inflation report forecast higher inflation and weak growth.

Governor Mervyn King also said the Bank was ready to tolerate higher inflation to support the economy.

Steve Englander, currency strategist at Citi, wrote in a research note: "If you go through recent Bank of England commentary, they are quite openly cheer-leading the pound down as a way of closing the UK's external imbalance and generating a cyclical recovery."

Speculators have increased their bets against the pound, with latest data from the Commodity Futures Trading Commission showing they built up their largest "short" sterling bets since last June. Short sellers make money if a currency or share price goes down.

BBC

[interestrateripoff]

Luckily the aim isn't currency debasement.....

[RufflesTheGuineaPig]

It's down 0.2c against the euro. That's not news. The other day it dropped more than a cent.

[neon tetra]

Luckily the aim isn't currency debasement.....

So here's a question... One hedge against this would be gold, however, the price of this is governed by the prosperity of all countries, not just the basket case that is the UK. Buying into the dollar could be a better hedge, as probably, they are over the worst of their financial problems (they've allowed a crash to happen).

So, dollar accounts with a nominal rate of invest could be a possible way forward?

[zugzwang]

Brent crude within a whisker of £77bbl this morning. A sterling retreat from $1.54 to $1.50 would make a new record high almost inevitable.

Record oil prices, a flying start for the inflation-loving Carnage!

[Eddie_George]

Record oil prices, a flying start for the inflation-loving Carn[ey]age!

I'm sure someone's already done that one!

[interestrateripoff]

So here's a question... One hedge against this would be gold, however, the price of this is governed by the prosperity of all countries, not just the basket case that is the UK. Buying into the dollar could be a better hedge, as probably, they are over the worst of their financial problems (they've allowed a crash to happen).

So, dollar accounts with a nominal rate of invest could be a possible way forward?

If you know the outcome that's the one to pick.

The trouble is there are so many variables finding the winner means you might be better sticking it all on the horses.

[ToughEgg]

It's a tough call but the BoE do seem out to get sterling. I've thought of putting the STR fund into dollars- anyone know a good uk based dollar account and what extra commission you would pay to convert?

[cashinmattress]

Pound continues to be weakened against the dollar and euro.

Fixed it for ya.

[opt_out]

It's a tough call but the BoE do seem out to get sterling. I've thought of putting the STR fund into dollars- anyone know a good uk based dollar account and what extra commission you would pay to convert?

If you don't actually need dollars, but merely want to gamble on dollar vs pound until you spend your pounds on a house, then it might be cheaper to do the gamble via spreadbetting.

Not sure of this, so interested to see calcs of others.

[winkie]

If you don't actually need dollars, but merely want to gamble on dollar vs pound until you spend your pounds on a house, then it might be cheaper to do the gamble via spreadbetting.

Not sure of this, so interested to see calcs of others.

...odds on if we continue printing at the rate we are going the pound will only fall further...lose the triple a and it will fall even further......do we import or export more?....if we are importing more the cost of living will become more expensive...all our good exports will be exported because they will obtain a higher price....our choices will diminish, fewer choices only mean higher prices or reduced quality.

[zugzwang]

...odds on if we continue printing at the rate we are going the pound will only fall further...lose the triple a and it will fall even further......do we import or export more?....if we are importing more the cost of living will become more expensive...all our good exports will be exported because they will obtain a higher price....our choices will diminish, fewer choices only mean higher prices or reduced quality.

AAA is almost certainly forfeit - consistent with recent gilt price movements.

Since the UK is debt saturated already - there is no domestic demand - the only possible escape is via devaluation and export. Sadly, as a net energy, food and water importer, this option potentially exposes the country to considerable risk of hardship. Moreover, in a race to the bottom, it's far from certain that sterling will be allowed to devalue sufficiently quickly to impact the UK's trade balance. The Japanese and Swiss have tried for years to do the same with very limited success.

A slow, lingering death until default remains my basic presumption for UK plc.

[Blue Peter]

A slow, lingering death until default remains my basic presumption for UK plc.

Why will it default when it can print (or QE)?

Peter.

[winkie]

AAA is almost certainly forfeit - consistent with recent gilt price movements.

Since the UK is debt saturated already - there is no domestic demand - the only possible escape is via devaluation and export. Sadly, as a net energy, food and water importer, this option potentially exposes the country to considerable risk of hardship. Moreover, in a race to the bottom, it's far from certain that sterling will be allowed to devalue sufficiently quickly to impact the UK's trade balance. The Japanese and Swiss have tried for years to do the same with very limited success.

A slow, lingering death until default remains my basic presumption for UK plc.

Why the need for a slow lingering death.....can't all indebted countries synchronize the default together to spare the pain.....?

[@contradevian]

If you don't actually need dollars, but merely want to gamble on dollar vs pound until you spend your pounds on a house, then it might be cheaper to do the gamble via spreadbetting.

Not sure of this, so interested to see calcs of others.

At the moment I am long euro/usd long euro /jpy long usd/jpy .. short aus/usd

http://www.forexlive.com/blog/2013/02/18/asian-sovereign-buying-eurjpy-prime-mover/

Edited February 18, 2013 by Secure Tenant

[frederico]

Why will it default when it can print (or QE)?

Peter.

Printing however you call it will never achieve anything except inflation and a faster default.

If you print you default by stealth anyway and the markets won't hang around to see that happening.

[frederico]

AAA is almost certainly forfeit - consistent with recent gilt price movements.

Since the UK is debt saturated already - there is no domestic demand - the only possible escape is via devaluation and export. Sadly, as a net energy, food and water importer, this option potentially exposes the country to considerable risk of hardship. Moreover, in a race to the bottom, it's far from certain that sterling will be allowed to devalue sufficiently quickly to impact the UK's trade balance. The Japanese and Swiss have tried for years to do the same with very limited success.

A slow, lingering death until default remains my basic presumption for UK plc.

I agree, everyone wants to take the easy way, but that will never work.

[Gigantic Purple Slug]

Printing however you call it will never achieve anything except inflation and a faster default.

If you print you default by stealth anyway and the markets won't hang around to see that happening.

It's different this time

In the past when people have printed they have printed in isolation.

The effects will be different.

Anyhow interesting to see the euro holding up against the £, which is strange to me since everyone seems to tell me Europe is going to hell in a handcart.

Could it be that if you look at the fundamentals of the EZ as a whole against other major currencies ($, yen) it doesn't look so bad after all ?

[Deckard]

Anyhow interesting to see the euro holding up against the £, which is strange to me since everyone seems to tell me Europe is going to hell in a handcart.

Could it be that if you look at the fundamentals of the EZ as a whole against other major currencies ($, yen) it doesn't look so bad after all ?

No. The Euro is holding up simply because its guardians are extremely short of ammunition in the currency war that is now unfolding across the globe.

[Oliver Sutton]

No. The Euro is holding up simply because its guardians are extremely short of ammunition in the currency war that is now unfolding across the globe.

Nothing to do with the Eurozone trade surplus and the mostly manageable budget deficits (Germany ran a small surplus last year)?The fact is rather that the euro and its guardians look extremely short of ammunition in the undeclared currency war that is now unfolding across the globe.

Their peers at the U.S. Federal Reserve, and at the Banks of England and Japan have it fairly easy. They only need the blessing of a single government, their own, to initiate the sort of straight quantitative easing that will send their currencies crashing lower, sorry, that should be stimulate their economies, obviously.

The poor old euro zone needs the consent of 17 governments, and the ability to buy up the debt of 17 countries. Of course, it can't have that. And even if 16 countries agreed, that big one in the northeast that holds all the cards wouldn't.

So what the euro has instead is the Outright Monetary Transaction. Now, no one would deny the reassuring effect this has had since its announcement, but it has yet to be used. The ECB attached conditions so punitive that to do so would be all-but political suicide for any national leader who did..

Surely, this must be a good thing.

EZ countries are being forced to genuinly re-balnce while the UK has fauxterity.

Edited February 18, 2013 by Corinne Stockheath

[Gigantic Purple Slug]

Nothing to do with the Eurozone trade surplus and the mostly manageable budget deficits (Germany ran a small surplus last year)?The fact is rather that the euro and its guardians look extremely short of ammunition in the undeclared currency war that is now unfolding across the globe.

Surely, this must be a good thing.

EZ countries are being forced to genuinly re-balnce while the UK has fauxterity.

I think this is Camerons gamble.

Put the UK into a zombie state like Japan and hope the US and the EZ recover long before us. Then when we have to take the pain at least there will be the world economy in a good shape to export to, which may mitigate our recession.

Will it work ? Dunno. It's a dangerous tightrope walk to me. But then maybe they don't see any way forward. Anyway, only another 2.5 years to go - the finish line is in sight !

[Deckard]

EZ countries are being forced to genuinly re-balnce while the UK has fauxterity.

The PIIGS are being forced to "internally devalue", by lowering salaries. Meanwhile, the current Euro strength damages their exports and tourism.

This is simply unsustainable and will cause increasing social tensions. Keep an eye on the elections in Italy for a glimpse of what the future brings.

[Oliver Sutton]

The PIIGS are being forced to "internally devalue", by lowering salaries. Meanwhile, the current Euro strength damages their exports and tourism.

This is simply unsustainable and will cause increasing social tensions. Keep an eye on the elections in Italy for a glimpse of what the future brings.

Lowering salaries decreases costs. Should help get tourists back.

Re exports

Greece exports since 2002

Edited February 18, 2013 by Corinne Stockheath

[Deckard]

Lowering salaries decreases costs. Should help get tourists back.

No, they simply go to Croatia or Turkey instead.

Re exports

As it's been pointed out before, that's mostly because internal demand is being destroyed, resulting in imports declining faster than exports.

[Oliver Sutton]

As it's been pointed out before, that's mostly because internal demand is being destroyed, resulting in imports declining faster than exports.