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Being_Patient

Us/uk Interest Rate Parity

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According to this article the Fed are likely to increase US rates again at the end of the month.

"Many economists predict the Fed will up rates again at its next meeting on 31 January".

This will take them to 4.5%, the same as ours. For as long as I can remember UK rates have always been higher than the US's. So what happens when US rates reach parity or even go above ours? What will happen to investment flows? Are there any significant implications for our economy and hence the housing market? Will it tempt the BOE to push our rates up?

Lots of questions I know, any economists out there care to comment?

Happy new year

BP :)

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Brown will try to continue to put his influence on the MPC for as long as he can. If rates go up his already tarnished reputation will be finished. He does not care about the British Pound, all he is concearned with is an unhealthy desire to suceed Blair. This is now becoming a massive power struggle and by the time it is over he'll end up with a tainted prize. In the meantime economic pressures will tell him to raise rates yet he will continue to use his propganda machine (BBC) to tell the nation everything is just fine and dandy. So either some will give during this period or he will have reduced the country to nothing by importing inflation and letting this Premiership thing completely comsume him.

Personally I think his ultimate desire,having come this close, is to see a Scotsman rule Britain.I think this is a dangerous obsession.

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need to update my graph as there is more recent data

as you can see US rates have been temporarally above uk rates in the past... (for no more than one year)

Uk_IR__US_IR__UK_HPI_Graph.JPG

post-552-1136391383_thumb.jpg

Edited by moosetea

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need to update my graph as there is more recent data

as you can see US rates have been temporarally above uk rates in the past... (for no more than one year)

Thanks for the graph, it confirms that UK rates are normally above those of the US and that, broadly speaking, UK rates track those of the US. But what is the likely effect on the currency and financial markets of parity?

We wait and see I guess...

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run on the pound

=

inflation

Well, that is what I would have thought, but as it now looks as though the fed rate may overtake the UK rate, tehe pound has not weakened significantly.

Why is this? Do the markets not see this as a problem? Do the markets assume that UK rates are going to have to rise? What is happening to long term rates at the moment, they were trending upwards?

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Well, that is what I would have thought, but as it now looks as though the fed rate may overtake the UK rate, tehe pound has not weakened significantly.

Why is this? Do the markets not see this as a problem? Do the markets assume that UK rates are going to have to rise? What is happening to long term rates at the moment, they were trending upwards?

What we appear to be seeing is convergence of rates from all the key industrialised economies around the world. This is not surprising as globalisation progresses, equalising input costs and exerting downwards pressure on wages in high labour cost countries such as ours.

I can see no reason why the UK, Euro Zone, Japan and USA should not soon all have steady state, lock-linked interest rates in the 3-5% zone for years to come. In particular, there is no economic (as opposed to sentiment-based historical) reason why sterling should in future be at a premiem to the others.

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What we appear to be seeing is convergence of rates from all the key industrialised economies around the world. This is not surprising as globalisation progresses, equalising input costs and exerting downwards pressure on wages in high labour cost countries such as ours.

Disagree. Even within the relatively small area of the Eurozone, they cannot get their economies to converge enough to make a single interest rate unproblematic. That is why you have rampant inflation (and negative real interest rates) in Spain and Ireland and stagnation in Germany.

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Disagree. Even within the relatively small area of the Eurozone, they cannot get their economies to converge enough to make a single interest rate unproblematic. That is why you have rampant inflation (and negative real interest rates) in Spain and Ireland and stagnation in Germany.

This is a legacy issue, but becoming less pressing as time passes.

Germany's no longer stagnant, at least according to the evidence of my Siemens shares!

There will be a longer term issue for those economies refusing to accept global realities (France, Italy) but they will be forced in to time to reform and converge.

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My longer term bet is the pound IRs will converge with Euro at about 3.5% and shortly afterwards we will join the Euro. Then we will be in the lap of the Germans and the foruth Reich will emerge. At this point things might start improving round here !!!

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the £ is doing pretty much what you should expect. The traders ramped it back up to a 2 year, squeezing the weak holders out, and are now letting it slip. The 'public' reason for this is that 'the markets have already priced in the next US rise'. The real reason is that they have to drive it up or down to make money. They just went up a long way, now they are going down a ways. That's how they take your money off you.

Ultimately, the underlying realities become too strong even for the likes of major banks to manipulate, and the real trend is revealed. It's already visible if u care to look. The £ is shafted long term. Nowt to worry about of course (unless u have a mortgage denom'd outside sterling). Like the housing markets it moves in cycles. As Arnie would say 'Ill be back'.

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My 2p.

US raising interest rates to continue to attract back the dollars sold to purchase imported goods / oil to prevent the value of their currency depreciating and thereby importing a dose of inflation. I.e. not being able to buy all those lovely products.

The $ is recycled through the oft discussed purchases of treasuries by asian central banks. Presumably the oil money is also ending up back in the US, after it has taken a turn but how? I wonder what they are buying?

You would expect £ to fall against the $ if £ interest rates were not raised at the same time as US rate rises.

I believe the relative stability of the £:$ while US rates have risen is actually representative of fundamental US$ weakness. I.e. they have to keep raising their rates to keep attracting the cash.

Also they may have had an interest in cooling the rampant housing market, although that may be too kind.

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Brown will try to continue to put his influence on the MPC for as long as he can.

How?

Remind us of the evidence you have for previous influence used.

p

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Suspect the £, $ and Euro won't shift too much against each other - I actually think there will be a lot of Arab and Russian money (from oil and gas) being invested back into American, Britsh and European stock markets / companies.

These companies will then continue to invest in production capacity in China and India, so circulating the money around the world and boosting the demand for oil and gas.

Is their a vicious or virtuous circle there that you can spot ?

I guess the end result is that we all end up working for the guys who own the natural resources.

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run on the pound

=

inflation

precisely right.you'll see in 2002 when US rates go below ours there is a big US$ sell-off making cable go from $1.40 right up to $1.90+ over the next 2 years.

if this move were to be repeated in the opposite direction we could expect dollar to strengthen against the pound,pehaps getting back to and below long-term average of $1.60.

....however,if US rates peak at or below 4.5%,we might find another bout of dollar weakness pushing sterling up to $1.85ish again,perhaps higher if our rates are held beyond february.

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According to this article the Fed are likely to increase US rates again at the end of the month.

"Many economists predict the Fed will up rates again at its next meeting on 31 January".

This will take them to 4.5%, the same as ours. For as long as I can remember UK rates have always been higher than the US's. So what happens when US rates reach parity or even go above ours? What will happen to investment flows? Are there any significant implications for our economy and hence the housing market? Will it tempt the BOE to push our rates up?

Lots of questions I know, any economists out there care to comment?

Happy new year

BP :)

Take a look at my E-mail to the bank of england: http://www.housepricecrash.co.uk/forum/ind...ndpost&p=253597

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How?

Remind us of the evidence you have for previous influence used.

p

Ah yes,

I was wondering how long it would take for the New Labour HPC members to pick up on this. Tell us, are you, as most have you down as, really working for New Labour? It doesn't take a genius to track your postings and see your objective. If you are as many of us thought simply New Labour, why don't you just say it? We don't mind declaring our interests. Or is it that New Labour would not want to give us the satisfaction of admitting that they pay people to monitor a site like this? Never mind we all know what dirty tricks new Labour get up to including writing false letters of commendation and pretending they are from genuine members of the public as was shown on television. Apologies to the other HPC members for going to rant mode but these New Labourites really get my goat since they bullied the BBC into submission.

Never mind at least we have the satisfaction of knowing that once Brown receives his poisoned chalice he will get a damn good kick in by Cameron in the next election. :lol:

Anyway back to the point, how many MPC members are Brown's appointees?

Answer: All of the external members, made up of journalists and media types who out voted the true bankers at the core of the MPC in August. Funny how all of Brown’s external appointees & unqualified members ( in banking terms ) out voted the genuinely high calibre ex-banking professionals at the core including the Governor.

;)

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Brown will try to continue to put his influence on the MPC for as long as he can. If rates go up his already tarnished reputation will be finished. He does not care about the British Pound, all he is concearned with is an unhealthy desire to suceed Blair. This is now becoming a massive power struggle and by the time it is over he'll end up with a tainted prize. In the meantime economic pressures will tell him to raise rates yet he will continue to use his propganda machine (BBC) to tell the nation everything is just fine and dandy. So either some will give during this period or he will have reduced the country to nothing by importing inflation and letting this Premiership thing completely comsume him.

Personally I think his ultimate desire,having come this close, is to see a Scotsman rule Britain.I think this is a dangerous obsession.

Correct me if I am wrong please but I think you already have one!

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Take a look at my E-mail to the bank of england: http://www.housepricecrash.co.uk/forum/ind...ndpost&p=253597

An excellent reply from the BOE, sorry I missed it when it first appeared.

I recall the days when UK rates slavishly followed US rates, I know that is less applicable these days with the rise of the EU as an economic power, but the US is still the world's No 1 economy, so when they sneeze...

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  • 331 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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