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Pound 'will Fall To Parity With Euro'

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http://www.telegraph.co.uk/finance/currenc...-with-euro.html

The low came as currency experts predicted the pound would fall further and reach parity with the euro within the first three months of 2010. One euro was worth as much as 90.36p, the highest level close since May 11. A year ago a euro would only buy 79p.

Confidence about the UK currency was eroded when issues surrounding Lloyds Banking Group's participation in the asset protection scheme once again put the spotlight on Britain's financial system, highlighting the problems that remain.

The pound was also significantly weaker against the dollar, closing down almost two and a half cents at $1.6291.

Currency strategists at BNP Paribas suggested sterling's weakness was not just a short-term blip because sterling would be dragged down by ongoing loose monetary conditions in the UK, relative to the eurozone.

"Sterling is likely be the underperformer among the majors, despite a favourable global financial market environment, as the UK domestic picture is set to deteriorate, with the fiscal/monetary policy mix in particular working against sterling," they said in a note.

The Bank of England has maintained a cautious tone when discussing the prospects for economic recovery in the UK. Mervyn King, the Governor, has signalled that interest rates are likely to remain at very low levels for the foreseeable future as the economy emerges from recession into a period of subdued growth. In contrast the European Central Bank (ECB) has warned against keeping rates too low for too long.

Will the experts be proved correct.

Won't this be a year later than predicted by a certain someone on here?

Although this does appear to ignore the problems in the Eurozone.

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http://www.telegraph.co.uk/finance/comment...come-clear.html

We will no doubt feel a shiver of humiliation as one of the world's oldest currencies sinks to parity with one of its newest.

The pound's weakness will be seen as an outward sign of the UK economy's decline, of our national loss of economic power and a reflection of our lowly standing in the world.

There is some justification for this reaction. An economy's health is, in part, reflected in the relative value of its currency.

One of the causes of a weak pound is concern among international capital markets over the mess that Labour has made of the nation's finances. Having spent our way to an annual deficit of at least £175bn, or 12pc of GDP, Gordon Brown has to find a way of paying for it. The country's official credit rating may not yet have been cut, but our credibility rating certainly has.

Labour mortgaged the country to the hilt and our economy now faces a vast repayment shock as taxes rise and government spending is cut to try to bring things back into balance. That mix of fiscal tightening will keep us bumping along the bottom, rather than recovering, for most of next year, as inflation remains subdued.

The only policy response left open is for the Bank of England to take over the reins and keep the official Bank rate at 0.5pc, or lower, while continuing to print money through quantitative easing. An extension of this will be to start applying negative interest rates to the reserves of banks held with the Old Lady of Threadneedle Street to try to prompt more lending.

But the euro's strength is not just about sterling's weakness. As BNP Paribas pointed out yesterday, European banks are selling their sterling reserves and swapping into euros as they repatriate assets to underpin their own crumbling balance sheets – which is a separate story for another day. But the fact that fiscal policy here is about to deliver a hammer blow to our economy and monetary policy is as relaxed as it can be leaves sterling on its back.

But that is where the tale starts to turn a little more positive. That we have maintained an independent currency has left us some room for manoeuvre, if not complete control, over our destiny. It has provided some valuable freedom of movement during the extreme pressures of the past year while mainland Europe has been locked in the grip of the euro. At parity, our exporters will enjoy further competitive advantages to their rivals in the euro-bloc, our biggest trading partner.

Without this sort of depreciation our economic prospects would be looking grim indeed, so Gordon Brown's insistence that we stay out of the euro 10 years ago will probably be the one, and only, thing to be thankful for from his otherwise failed years in office.

Again another article which mentions the fact the economy is totally reliant on credit.

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http://www.telegraph.co.uk/news/worldnews/...d-go-round.html

The annoying thing about economics is that nearly all issues of any importance can convincingly be argued either way. It is only the long passage of time that validates one line of analysis over another, and even then, established orthodoxies get periodically overturned according to the fashion of the age.

So it is with the euro, whose benefits or otherwise for member countries will still be debated by economists years from now.

To attempt monetary union among once warring nations with radically different legal and cultural traditions, and without the common Treasury function that usually stands behind major currencies, would always be a contentious project.

Yet, there is at least one thing to be said in the euro's favour, which is that it is well established as a credible form of exchange. So far, it has withstood both internal and external pressures. What is more, it has achieved reserve currency status.

Many believed it would never get off the ground at all, such were the complexities of the new currency. But thus far it has defied its critics. The single currency's introduction was a masterpiece of Teutonic planning, executed with military precision. Having been proved wrong about its birth, sceptics then turned their attention to the euro's sustainability, roundly declaring that it couldn't possibly last. Eventually, they predicted, it would collapse under the weight of its own contradictions. So far it hasn't.

Yet the reasons for this durability are not what you would expect. Even before the economic crisis, the rules and principles supposed to underpin the euro and provide a modicum of fiscal cement between member states were being routinely compromised. Since the credit crunch broke, it is not so much a coach and horses that have been driven through the stability and growth pact – the rules that are meant to limit the budget deficit of member countries to no more than three per cent of GDP – as the whole train set.

With fiscal deficits around the eurozone spiralling out of control, the pact is toast, or suspended for the duration of the crisis, depending on how charitably you want to view events. Surely this would mark the beginning of the end for the euro? Yet again, it has not.

The single currency has survived because the line that has been held on the stability and growth pact has been roundly ignored. Toleration of unruly behaviour has saved the euro from forced or voluntary withdrawal.

What is more, this catastrophic collapse in internal discipline has not had any noticeable adverse effect on the euro's international stature. To the contrary, the crisis has enhanced the euro's appeal as a reserve currency alternative to the dollar.

I won't argue that the euro remains a benefit to all its members. Some weaker, less competitive states would undoubtedly benefit from a lower exchange rate, just as the core union of Germany and France might arguably be better off without the millstone of Italy, Portugal, Greece and others hanging around its neck.

If Germany and France were on their own, they could better tailor monetary policy to their own needs, while the implicit cross-subsidy from Germany of weaker member countries would disappear. Bond yields in Germany would fall to close to zero and the Bundesbank would be able to follow the Bank of England into quantitative easing.

This is why the clever-clogs' answer to the question "Which country might leave the euro first because of present tensions?" is not Ireland, Spain or others suffering crushing economic contraction and unemployment as a result of the crisis, but Germany, the euro's spiritual and physical centre.

In reality, no one will leave any time soon. Far from the crisis undermining the euro, says Willem Buiter of the London School of Economics, the single currency has proved a bulwark against the crisis. The economic situation among peripheral members of the euro is grave, but just think how much worse it would be if the likes of Ireland, Italy and Spain had floating exchange rates.

Another who thinks the euro has been vindicated by the financial and economic crisis, rather than undermined by it, is Richard Portes, professor of economics at the London Business School. Without the euro, he contends, there would be catastrophic currency crisis in all these countries, on top of the existing financial and economic maelstrom, causing interest rates to sky rocket and the already dramatic contraction to deepen further.

I'm not fully convinced yet the Eurozone will survive as it is, once the bad debts from the Baltic states etc... work through the system we'll then know how robust the Euro is.

The structural pressures with the Eurozone are growing it will be interesting to see how this plays out.

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http://www.telegraph.co.uk/finance/currenc...-with-euro.html

Will the experts be proved correct.

Won't this be a year later than predicted by a certain someone on here?

Although this does appear to ignore the problems in the Eurozone.

No. He was urging selling at .98 and predicting 1.30 or 1.50 or something. It would make perfect sense to revisit that low imho.

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http://www.telegraph.co.uk/finance/currenc...-with-euro.html

Will the experts be proved correct.

Won't this be a year later than predicted by a certain someone on here?

Although this does appear to ignore the problems in the Eurozone.

Other so called experts are saying it will go back to 1.15 so goes to show they are all a load of twats.

1.10 seems fair value and i predicted that level 4 years ago when most people here thought i was talking silly but it's funney they all seem to agree now.

the value of the pound need to be reduced to wipe out debt else the whole house of cards will come crashing down so maybe we will see £1m ex council flats in leeds but it will cost that much to buy a ford escort and what ever you do don't exspect wages to keep pace as we are flooded with immigrants to force wages down.

next week we can have another euro is dead post.

Edited by Justice

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the value of the pound need to be reduced to wipe out debt else the whole house of cards will come crashing down so maybe we will see £1m ex council flats in leeds but it will cost that much to buy a ford escort and what ever you do don't exspect wages to keep pace as we are flooded with immigrants to force wages down.

Doesn't that only work if most UK debt is in pounds? What happens if we owe debt in Euro's or dollars etc..?

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