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Pound Hits The Skids To Lowest Point Since January 2005

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http://today.reuters.co.uk/investing/finan...RLING-CLOSE.XML

Sterling weakens vs euro to lowest since Jan '05

Wed Apr 5, 2006 2:59 PM BST

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LONDON, April 5 (Reuters) - Sterling weakened beyond 70 pence per euro for the first time since January 2005 and also slipped against the dollar on Wednesday after soft UK data hardened expectations that interest rates will stay put.
The CIPS/RBS services sector survey showed the main activity index falling to a weaker-than-expected 57.4 in March from 58.9 the previous month.
That was compounded by British manufacturing production unexpectedly falling by 0.2 percent in February after three months of consecutive rises.
The BoE announces its rate decision on Thursday, with policymakers expected to keep rates unchanged at 4.5 percent.

The BoE dare not raise with the housing bubble on a knife edge and employment softening. But how long can they resist the world trend? With the pound crashing against the Euro and Yen/Yuan imports will start to rise and inflation goes up (unless they factor out imports in the basket of CPI items :lol: ).

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The BoE dare not raise with the housing bubble on a knife edge and employment softening. But how long can they resist the world trend?

My vote goes for raising in July or August. If I didn't think they would be forced to raise this year I'd have shipped my ISA abroad today as well as my liquid savings.

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Bank of England - Target Two Point Zero

bilateral and effective exchange rates

You can look at the pound's exchange rate on what is termed a 'bilateral' basis - the exchange rate between two currencies, such as the pound relative to the US dollar - and what is termed an 'effective' basis.

An effective exchange rate is an average of different bilateral exchange rates, weighted according to the importance of each one to a country's trade. The sterling effective exchange rate index (ERI) reflects the pattern of UK trade with its 29 main trading partners. The sterling-euro exchange rate has a weight of 55% in the ERI.

You can also look at other exchange rates to shed light on movements in sterling. For example, you can see if a change in the rate between the pound and the euro has been similar to the exchange rate movements between the dollar and the euro. This might help to explain what has caused exchange rate changes. Other exchange rates also help us to assess future economic conditions in the UK's main trading partners

The value of the pound against the euro is more significant than the pound against the dollar to the Bank of England when setting base rate. The BOE uses a measure called the ERI.

What I can't find out is how much weight the BOE put on this ERI figure. Can anybody give me a link which shows the current ERI with a graph of ERI over the past 12 months? Would appreciate some help with this.

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Manufacturing must be enjoying the weak pound, cheaper exports and all that.

Yep. Higher energy prices, higher raw material prices, lower export prices... just great for business.

Also, a lot of companies that make things these days have shifted the actual production work abroad to save money to compensate for the higher costs, so a lower pound increases their wage bills too.

Edited by MarkG

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Also, a lot of companies that make things these days have shifted the actual production work abroad to save money to compensate for the higher costs, so a lower pound increases their wage bills too.

Good point. The magic of outsourcing. It's great when your currency is strong but...

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We are headed into the perfect storm:

lower pound

higher imports including all important fuel costs

higher outsourcing wage bills

inflation as prices of imports rise--the UK being heavily dependent on imported manufactured goods

higher IR to dampen inflation

stagnant wages due to overseas competition and rising outsourcing

increasing imbalances in government deficits

rising taxes to help government pay deficits

:o:o:o

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Bump - Can anybody help me with ERI.

How's it calculated, what its current value, do the BOE act if it falls ???

Try here for how the ERI is calculated. Note that Euro area weighting is 55.2% and US is 18.8%.

For up to date ERI values go here. Currently it's at 97.92, where 1-Jan-2005 is 100.0.

The BOE assesses the impact of exchange rates in the inflation report (here). It gets particular mention here.

T&T

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Are we measuring the GBP against the Euro now? I thought the GBP/USD was the chosen cross of doom?

<_<

GBP looks like it may well reverse against the USD. Recent uptrend looks broken and there could be a classic support/resistance thing going on.

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Are we measuring the GBP against the Euro now? I thought the GBP/USD was the chosen cross of doom?

<_<

GBP looks like it may well reverse against the USD. Recent uptrend looks broken and there could be a classic support/resistance thing going on.

I've been shorting the crap out of it since yesterday.

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Try here for how the ERI is calculated. Note that Euro area weighting is 55.2% and US is 18.8%.

For up to date ERI values go here. Currently it's at 97.92, where 1-Jan-2005 is 100.0.

The BOE assesses the impact of exchange rates in the inflation report (here). It gets particular mention here.

T&T

Many thanks. Interesting to see that a small fall in ERI is already built into the BOE's expectations.

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Are we measuring the GBP against the Euro now? I thought the GBP/USD was the chosen cross of doom?

<_<

GBP looks like it may well reverse against the USD. Recent uptrend looks broken and there could be a classic support/resistance thing going on.

The $ is important as most commodities are priced in dollars. But the majority of our trade is done with eurozone countries and we are a net importer so it is relevant.

Chart dosn't look great.

__v_euro.gif

post-176-1144273420.gif

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And it's the bulls who've been pushing the 'dollar rate doesn't matter, because we do most trade with the Euro' theory: oddly, they've stopped pushing it now we're sinking against the Euro.

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Try here for how the ERI is calculated. Note that Euro area weighting is 55.2% and US is 18.8%.

For up to date ERI values go here. Currently it's at 97.92, where 1-Jan-2005 is 100.0.

The BOE assesses the impact of exchange rates in the inflation report (here). It gets particular mention here.

T&T

So ERI fell to 97.52 yesterday. The lowest since December 2003.

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  • 301 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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