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The £ Is Dropping

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For the last months the £ was about $1.50 but noticed that now it has reached $1.47!!!

Whats going on the last 1-2 weeks to get such a decrease?

Is this due to the Fed hiking?

If petrol prices were to rise to previous levels with such a USDGBP rate, then the inflation will shoot up..

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Probably something to do with 60% of GDP, selling the same scraps of land to each other at ever increasing values.

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There is a trend in the graph.

Very keen to watch the US economy figures in the next weeks/months. If they do raise 25bp in February/March , then it would be fun to watch the MPC having to do something..

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I think the MPC is going to have to hike a little. Worth some popcorn for moaning and groaning from the ho moanerz and BTL "how could the government allow this to happen."

Edited by RentierParadisio

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The chart gives perspective

1.png

Actually that chart does not go back far enough I think.

I have also looked at such £/$ charts.

You need to look at the exchange rate going all the way back to 1971 (when the prior fixed rate system ended) and the current day 'floating' rate system we have today came into effect. That chart (and similarly for other $ exchange rates) is very revealing indeed - and I think shows the much bigger and truer longer term picture.

That chart will show a clear, albeit choppy, very long term downtrend of the £ vs the $ (i.e. the £ getting progressively weaker). Within that multi-decade period there were, as is to be expected, shorter multi-year periods when the dollar got weaker. Your chart 'starts' at the start of such a intermediate period of dollar weakening - before then falling back to the fairly level/constant 1.55-ish level (+/- a bit). THAT later period, over the most recent decade, is most likely due to the much greater interference of central banks and their attempts to 'manage' what is supposed to be a free floating system (i.e only the market decides what the rate should be).

Such a post-1971 chart clearly reflects the gradual decline in the UK economy, relative to the U.S.

The same duration chart for, say, the US$ vs the Japanese Yen shows the opposite. With the the Yen, until only relatively recently, showing a strong and steady trend of getting stronger vs the $.

Those comments aside, however, the point you were making is valid - a few cents/pennies difference in the exchange rate over time frames of days/weeks is meaningless

Edited by anonguest

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I've been very aware of the GBP/USD Exchange Rate for the last 20 years, as my business imports from the USA so it has a significant and direct effect on my bottom line. I've seen it go down to below $1.40 and up to $2.00, but it always seems to swing back to around $1.60. Movements of a couple of cents this way or that happen all the time.

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I found a longer term chart - Bigcharts only go back so far.

1.png

Parity was nearly reached in 1985. So the odds of another parity I would give is 1 in 44, you could calculate. 2015-1971 = 44 Long odds!

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Unemployment rate provides a clue to where the £ is going.

UKunemployment19461999.jpg

Source http://socialdemocracy21stcentury.blogspot.co.uk/2013/04/thatchers-passing.html I don't know how trust worthy this data is, as it is from a blog.

Appendix: UK Unemployment, 1971–1999

Year | Unemployment Rate

1971 | 3.4%

1972 | 3.7%

1973 | 2.6%

1974 | 2.6%

1975 | 4.1%

1976 | 5.6%

1977 | 5.7%

1978 | 5.6%

1979 | 5.2%

1980 | 6.7%

1981 | 10.2%

1982 | 11.9%

1983 | 13.0%

1984 | 14.1%

1985 | 14.5%

1986 | 14.8%

1987 | 13.3%

1988 | 10.7%

1989 | 8.3%

1990 | 7.7%

1991 | 10.6%

1992 | 12.7%

1993 | 13.4%

1994 | 12.2%

1995 | 10.8%

1996 | 9.8%

1997 | 7.4%

1998 | 6.3%

1999 | 5.8%

(Boyer and Hatton 2002: 667)
The current unemployment rate is 5.4% according to the latest ONS
http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/october-2015/statistical-bulletin.html' rel="external nofollow"> Edited by 200p

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Unemployment tells you little when comparing it to past figures.....more to do with what you earn against the cost of living at the time, more to do with what incentives there were to being in in work employment and out of work unemployment..... I could be employed for a few hours a week but not earn money I could live on, like many do today....take zero hours, self-employed few hours and poor pay that requires help and the unemployment figure would shoot up.....many of these people in past claimed 100% benefits, working claiming benefits today is partial unemployment....

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I found a longer term chart - Bigcharts only go back so far.

1.png

Parity was nearly reached in 1985. So the odds of another parity I would give is 1 in 44, you could calculate. 2015-1971 = 44 Long odds!

that is pretty much that chart time frame I was referring to. There is a clear, albeit slow, downtrend of the pound vs dollar.

IF one subscribes to the idea that the economic fundamentals going forward of the UK continue to be worse than the US (as bad as they may be) then trend will continue. The more recent somewhat 'levelling off' that is seen in the last decade is down to more active manipulation of exchange rates by TPTB.

BUT in the end the market will win and thus, if the aforementioned UK vs US weakness premise is valid, then this extended attempt at stability will break down and the downtrend of £ vs US$ will resume.

IF one draws a simplistic 'best fit' straight line to the chart than it suggests that by around 2020 or so we can expect to see the rate to be easily occupying the sub-1.30-ish region on a regular basis by then.

Edited by anonguest

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I've been very aware of the GBP/USD Exchange Rate for the last 20 years, as my business imports from the USA so it has a significant and direct effect on my bottom line. I've seen it go down to below $1.40 and up to $2.00, but it always seems to swing back to around $1.60. Movements of a couple of cents this way or that happen all the time.

Yes long run magnet has been 1.60.

I see that now as more likely the peak than the magnet.

Largest twin deficits in developed world.

Needs to break 1.45 then 1.42 before serious crash. Look for it later in 2016 into 2017.

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If it goes down below $1.40 inflation will creep back.Import costs from China are all US$ priced.The goods and the shipping (and the UK VAT based one the import £/$ cost).

Importing myself i doubt retailers can swallow any of that margin loss themselves.They are already on tight margins.You would have to think interest rates would have to rise to support the £ below $1.40.

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THAT would be wonderful. However we are #turningjapanese - low inflation/deflation and low int rates for as long as you can imagine. Which will have the same effect on house prices.

Edited by Killer Bunny

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THAT would be wonderful. However we are #turningjapanese - low inflation/deflation and low int rates for as long as you can imagine. Which will have the same effect on house prices.

I don't think we will follow the Japanese experience, their economy is hugely different to ours, they can soak up printing money etc because they export so much. Our economy is living in lahlah land and has no real substance.

Inflation could return fairly soon, the oil price reduction rate will slow down , if that happens paying off debts becomes very difficult, if the pound drops then they will put up rates.

As we know the whole thing is a bit precarious however this country has very little in the way of true production or natural resources.

America has loads of natural resources and loads of production, Japan has loads of production.

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Everyone said QE1-9 Japan would decimate their currency. Until 2012 it did the opposite.

Finally QQE is doing the trick. However Japan still er #turningjapanese

On verra but mwdium term £ not healthy.

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