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Pound Falls Ahead Of Inflation Report

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http://www.telegraph.co.uk/finance/economi...ion-report.html

The pound fell by almost a cent-and-a-half against the dollar as suspicion grew throughout the City that the Bank will use Tuesday’s Inflation Report to dampen expectations about the strength of the economic rebound. Analysts said they suspected that the Bank is using quantitative easing (QE) – the programme of money creation it extended last week – to keep sterling low and cement recovery.

It came as new surveys pointed towards further recovery in both the housing market and the high street. The Royal Institution of Chartered Surveyors (RICS) said the number of home sales agreed last month rose at the fastest rate in a decade, while the British Retail Consortium reported an increase in sales.

The Bank’s decision last week took the City by surprise, since economists had expected the Monetary Policy Committee to freeze QE. But experts said that markets may have been wrong-footed: although there are early signs of economic recovery, they were outweighed for the Bank by the rise in sterling.

The pound has appreciated by 6pc in the past quarter. According to the Bank’s rule of thumb, this is equivalent to interest rate increases of 1.5 percentage points. It was only following last week’s rate decision that the pound dropped from near the $1.70 level against the dollar to by last night’s close, $1.6534.

The Bank does not explicitly target currencies, in contrast to the Swiss National Bank and Sweden’s Riksbank. However, analysts said its latest actions amounted to covertly keeping the pound down.

Hans Redeker of BNP Paribas said: “Unless the UK is ready to deflate its production costs heavily, it can only achieve required competitiveness by reducing the value of sterling… The BoE knows this and its decision to increase its quantitative easing efforts may well have to be seen in the context of summer sterling strength.â€

Martin Weale, of the National Institute for Economic and Social Research, said: “I think we need, for the benefit of economic growth, for the exchange rate to stay where it is and probably to weaken. I expect the Bank shares that view. If the depreciation hadn’t have happened our prospects would be much grimmer.â€

Simon Hayes, of Barclays Capital, said: “The MPC would never say it took its decision to bring the exchange rate down, but it would admit that the stronger pound will bear down on inflation in the medium term – and this is two ways of saying the same thing. It would have been a part of their decision-making.â€

I have long suspected that the recovery plan was based on devaluation, the classic move from the past. But how can you achieve that without overtly admitting it appear to do it on a purpose?

Clearly this is the US plan as well to combat China.

It appears we are in a trade war in all but name with China, to compete we've devalued the currency.

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Swiss were buying billions of euro's to keep the exchange rate steady recently.

Dollar / Cable moved down this week from yearly high

Cable / Euro moved down recently from yearly high..

Cable / Yen recently come down from yearly high....

Oh noes the Pound ( cable ) must be doomed.

recently 1.70 against the dollar , 162 yen and 84p ish against the euro

it's just corrections based on recent events and how much risk the market has appetite for

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http://www.telegraph.co.uk/finance/economi...ion-report.html

I have long suspected that the recovery plan was based on devaluation, the classic move from the past. But how can you achieve that without overtly admitting it appear to do it on a purpose?

Clearly this is the US plan as well to combat China.

It appears we are in a trade war in all but name with China, to compete we've devalued the currency.

Interesting article

I had thought the extension of QE was more that the BoE didnt believe the government's chat about "green shoots" and wanted to prevent deflation myself

Still it did prompt me to go and buy some more overseas bonds on Friday, so the end result was the same as the one in the article

Anybody know what time the BoE report comes out tomorrow - the press release should make interesting reading?

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hasnt worked so far....the pound has gone from $1.50 to $1.65..

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hasnt worked so far....the pound has gone from $1.50 to $1.65..

Perhaps the BoE need to contract the money supply then rather than increasing it.

It appears that the whole of economics has been turned on it's head anyway so why not reduce the supply and lower the price?

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Perhaps the BoE need to contract the money supply then rather than increasing it.

It appears that the whole of economics has been turned on it's head anyway so why not reduce the supply and lower the price?

no contracting it will frack the banks. (gutted)

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High pound = end of hopes of recovery.

Balance of trade got worse as pound rose:

http://uk.biz.yahoo.com/11082009/325/trade...idens-june.html

Trade gap widens in June

LONDON (Reuters) - Britain's goods trade gap with the rest of the world widened slightly more than expected in June as the oil balance swung into deficit due to summer maintenance work, official data showed on Tuesday.

The Office for National Statistics said that the goods trade gap rose to 6.451 billion pounds from 6.174 billion in May. Economists had forecast a deficit of 6.20 billion pounds.

Overall, imports rose 2.2 percent on the month, the biggest increase since July 2008, while exports gained 1.4 percent in June.

Markets showed little reaction to the data and economists noted the widening of the deficit followed a narrowing in May. "It's deteriorated a little bit and is a little bit wider than what it was in May, but it improved sharply that month," said Alan Clarke, economist at BNP Paribas.

The oil balance recorded a deficit of 315 million pounds after a surplus of 100 million in May. The ONS said this was probably due to increased refinery demand when UK production is lower because of summer maintenance on installations.

Most analysts still see the trade gap narrowing in the next few months as weaker sterling over the last year helps demand for British goods.

The goods trade gap with non-EU countries also widened slightly more than expected to 3.648 billion pounds from 3.215 billion pounds in May. Analysts had forecast a deficit of 3.5 billion pounds.

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http://www.bloomberg.com/apps/news?pid=206...id=aq34GQjaquqE

Pound Sentiment to Turn ‘Bearish’ on Drop Below $1.635, RBS Says

Share | Email | Print | A A A

By Matthew Brown

Aug. 11 (Bloomberg) -- The pound will fall further against the dollar if it drops below $1.635, Royal Bank of Scotland Group Plc said.

The so-called support level was created by the low on July 29, before the pound’s advance to a nine-month high on Aug. 6, Sydney-based RBS foreign-exchange strategist Greg Gibbs wrote in a research report today.

“A break of this support will turn sentiment more bearish,†Gibbs said. “There will be support around $1.6200, $1.6000 and $1.5725.â€

The pound was little changed at $1.6483 as of 7:45 a.m. in London. A support level is where buy orders may be clustered.

When the sharp downward trend in house prices resumes, and resume it will as jobs are shed, the pound will follow suit. Gordon's career and legacy--and the pound--are tied to house prices. We are a house price driven economy--it is our main business as a nation. Debt generation.

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Except sterling hasn't 'devalued' since Mervyn started QEasing.

It has risen 25% v USD (ok, that may be mostly due to dollar weakening)

But perhaps punters are more concerned about the deflationary pressures within the economy. QEasing may have staved off a run, not be likely to cause one.

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Except sterling hasn't 'devalued' since Mervyn started QEasing.

It has risen 25% v USD (ok, that may be mostly due to dollar weakening)

But perhaps punters are more concerned about the deflationary pressures within the economy. QEasing may have staved off a run, not be likely to cause one.

no, the dollar has fallen in real terms making it appear as if the pound has risen.

when are posters going to understand this

they are purposely being devalued at the same time, so that they can unravel the new currency......just in the nick of time & save the US, then save the rest of the western world obviously.

Team America.

do keep up at the back.

Edited by grumpy-old-man-returns

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no, the dollar has fallen in real terms making it appear as if the pound has risen.

when are posters going to understand this

they are purposely being devalued at the same time, so that they can unravel the new currency......just in the nick of time & save the US, then save the rest of the western world obviously.

Team America.

do keep up at the back.

In real terms?

Ok, sterling has risen against gold from £700 an ounce on 20th Feb, to £575 today.

So sterling has risen in real terms (according to your definition) by over 20% since Merv starting QEasing, as I said.

Do keep up at the back in Wakefield.

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In real terms?

Ok, sterling has risen against gold from £700 an ounce on 20th Feb, to £575 today.

So sterling has risen in real terms (according to your definition) by over 20% since Merv starting QEasing, as I said.

Do keep up at the back in Wakefield.

& so those that bought gold in 2006/7 have made a great investment then. ;)

the parity-pound is fooked & you all know it really, which is why a lot are tetchy. :D

gold is a store of wealth, if you can start seeing it this way, then you are learning. It's not about bubble mentality, it's aboout protecting your material worth. At historical juncture's like this depression has/is created/creating, you WILL realise at some point just how bad a situation the US & especially the UK is in, probably to your detrement.

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Many think currencies such as Sterling and the dollar will devalue due to QE. This is due to the dominant theory of monetarism in economics at the moment. It looks to me that this theory is in the process of being falsified as macro forces are effectively negating increased money supply. Perhaps there is more in heaven and earth than is dreamt of in the money supply figures.

So we could very well see the pound and dollar strengthen. Of course, it will be in the interest of all countries to have a devalued currency but how are they to achieve that consistently as opposed to just a one off hit due to QE? The threat of QE will eventualy fail with investors as they see through monetarist dogma and the idea that governments can continually expand the money supply. Looks to me they will could be constrained by growing public debt and the bond markets, with higher savings the Brits themselves will probably fund government debt for some time to come as happened in Japan [though I think a Japanese scenario would have to be the most optimistic one].

Along with the Chinese Yuan, other Asian currencies are effectively pegged to the dollar. There is absolutely no reason why China should "de-peg" as it could lead to capital flight and an economic crash. As for the dollar, the US dollar index is massively over-rated as a guide for devaluation; it is mostly measured against the Euro [2/3 if you throw in the Krona]. Any weakness in the index is effectively just strength in the Euro.

The problem is there is nothing to objectively devalue against. Currencies are all relative to each-other, and with this in mind you may as well say they are all strengthening as they are all weakening. And that is in fact what is happening in a deflationary environment. If western currencies can not devalue then they will be "crucified" by their strong currencies, they will have to live with the real burden of debt or face bankruptcies, which has to be a rough justice of sorts.

Edited by roman holiday

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