Sunday, May 06, 2007
Strange article from the Torygraph
Telegraph: Britain's interest rates will be set abroad
On Thursday the Bank of England is almost certain to raise interest rates to 5.5%. I don't agree. The Bank has just published data showing mortgage approvals at their lowest level for a year. The rate rises already implemented are now kicking in.
In my view, it is the world's currency markets, more than anything else, that will determine the future path of British interest rates. If America slumps, and US rates are cut, the dollar will fall against the pound, and a strong pound will lower British inflation.
If the dollar refuses to yield, and this "currency effect" doesn't happen, inflation in Britain may remain stubbornly high. Rates could then head towards 6 per cent.
Posted by little professor @ 06:02 PM (163 views) Add Comment
9 Comments
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1. little professor said...
2. confused76 said...
Little Professor
I think the Euro/GBP exchange rate has more bearing on the UK inflation than the dollar
3. sold 2 rent 1 said...
This bubble will collapse under its own weight of debt. Sky high interest rates are not required.
4. Scott said...
sold2rent1, I know that interest rates appear to be unlike what they were during the last crash, but I heard that based on what people are borrowing today, they are the equivalent of 14% in the days of the last boom. Why else would people be scared about Thursday? As a wannabe first time buyer, I can sit it out and watch everyone bleed. If the crippling rise does not happen this month, it will happen next month, or the month after. I am a patient boy.
5. Surfgatinho said...
If IRs do not go up this week then sterling will get a whipping and inflation will go up. It's a done deal - wouldn't want to upset the markets!
6. lvmreader said...
Bravo, confused76.
GBPUSD is a redherring
GBP/EUR and GBP/CNY are better indicators of our financial doom
7. harold said...
Towards the end of last week something interesting happened in the FX markets. For a while now the £ and € have been in line against the $. When one went up against the $ so did the other - that is, until last week when the £ suddenly decoupled from the € and fell rapidly. Whether this is a sign of things to come, I'm not sure - but it certainly looks like an interesting development and is, IMHO, long long overdue.
8. sold 2 rent 1 said...
I just transferred 150K EUR to GBP on Friday.
The guy at Currencies Direct told me that the GBP should rise above 1.50 against the EUR because of expected IR rises.
IMHO, the GBP will be the last to dive out the trio of GBP USD and EUR. The strains being placed on the EUR because of it's wobbling housing market and competitiveness of exports are showing through at last.
9. harold said...
s2r1
I beg to differ. if you were going to convert € to £ you should have done it two to three weeks ago. The pound will begin to follow the $ against the emerging new reserve currency, i.e., the €.