Weakening Pound

[war]

Weak pound

Pound is weakening. Consumer prices are going up.

I am not sure about the 'massaged' inflation figures. so do not know where the interest rates are heading.

What do every one think about the implications on house prices?

Edited February 18, 2006 by Doubtful

[look to the past]

I don’t think that the pound will get that weak (enough to effect anything). Last time interest rates were reduced it was hard to see if the pound adjusted at all. If the pound was to really drop I think it would make no difference to house prices as people don’t seem to think further than their credit card limit – they will just think that BMW’s are more expensive because they are better -not because of a weak pound.

People really need to be hit in the pocket hard to start a crash

Edited February 18, 2006 by look to the past

[bazzzzzzz]

The author fails to discuss the impact a further hike in US rates on 28/3 will have on the pound. :angry:

[Golden Shower]

Just a quick thought. There was a few bits of news last week that probably should have been bullish for the USD, but GBP recovered a bit. Are we going to see a rally (even a mini one) in GBP? My buy/sell indicators are pointing to go long on GBP vs USD.

I could be wrong of course.

[karhu]

Are we going to see a rally (even a mini one) in GBP? My buy/sell indicators are pointing to go long on GBP vs USD.

GS. You could be right. The hypothesis that the BoE will drop IRs is not holding much water at the moment.

[Realistbear]

The fundamentals which have been keeping the pound above historic norms of the past decade were:

1. Booming housing market

2. Low unemployment

3. Leading GDP figures

All three have reversed in the past 6 months to a falling housing market, rising unemployment and poor GDP figures.

So why is the pound still strong against both the Euro and the US$? The markets are probably waiting to see which way IR go.

[FTBagain]

So why is the pound still strong against both the Euro and the US$?

Probably, because no one wants to make the call on the UK economy. The old herd mentality. Sentiment can be very difficult to change, but when it does start to change it will do so quite quickly. If the IR are wrong when it changes there will be a run on the pound.

You will know that something is badly wrong when the MPC has a special meeting to hike rates. In the old days they never had regular meetings, they just reacted to the markets. Regular meetings are only possible when things are going well.

[ILikeBigBoobs]

Increasing integration of the UK economy and the eurozone may have reduced currency fluctuations as investors accept the idea of structural convergence. Asian central banks, aware of this strengthening relationship, may view sterling as a higher-yielding proxy for the euro. The pound’s increasing share of official reserves, shown in the latest Bank for International Settlements survey, may be evidence of this trend.

The consensus view is that sterling should weaken against the euro as the UK economy slows and the pound’s yield advantage wanes. It is valid to ask why sterling has not yet weakened, but it is dangerous to extrapolate from a period of stability that there has been structural change. Central banks’ diversification of reserve assets may owe more to dissatisfaction with the dollar than sterling’s intrinsic attractions. Periods of currency stability, as investors look to benefit from yield differences, are common. Less frequent violent adjustments, such as the Asian currency crisis, are a reminder that circumstances change.

Morgan Stanley is on stronger ground when arguing that it is the dollar that has dominated currency markets in recent years. Sterling is generally dragged along in its wake. Between 2001 and 2003, sterling weakened against the euro, along with the dollar, in spite of increasing interest rate support. The notion of sterling as a euro proxy could evaporate as quickly as the UK Independence Party’s prospects if the dollar renews its decline.

From the FT