Tuesday, Aug 08, 2006

Sterling supplants Yen in reserve currency preferences

Financial Times: Interesting Times for Sterling?

News on the surge of Sterling, citing Middle East billionaire effect on the UK economy, and predictions that the currency may surpass the 2.05; or plummet to depths a la 1992 if the Fed raises again. Anbody's game.

Posted by indiablue @ 03:08 PM (566 views)
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1. George Monsoon said...

Wow, thats one hell of a prediction, and to be fair this guy was right about the rate rise.

Im off to the states to buy cheap!

Tuesday, August 8, 2006 04:36PM Report Comment

2. sirgoogle said...

Sterling has not got enough behind it to be a reserve currency. My long term bet would the the Euro.

The last quote of the article says it all "The pound's last visit to the $2 mark occurred a week before Black Wednesday, sterling's humiliating exit from the exchange rate mechanism, the forerunner of the euro. Seven days after Black Wednesday sterling was wallowing at $1.69."

We are in for a bumpy ride

Tuesday, August 8, 2006 05:23PM Report Comment

3. Such_short_memories said...

Can anyone explain why, in view of this, that Sterling therefore did not display significant lows while the Fed was raising rates up to a level that became equal to and eventually greater than Sterling? Surely if investors saw that the Dollar was increasing while the Pound was perceived to be holding at 4.5%, the opposite of the effect as discussed in the article would have been witnessed, but it hasn't. Why is this?

Tuesday, August 8, 2006 05:32PM Report Comment

4. Sloth said...

I beleive the bumpy ride awaits the Eurowreck.

Tuesday, August 8, 2006 07:51PM Report Comment

5. harold said...

Sterling has about as much chance of becoming the reserve currency as the $ has of remaining the reserve currency, i.e., no chance.

Tuesday, August 8, 2006 11:17PM Report Comment

6. indiablue19 said...

Your question leads me to comment on the article I've posted. I appreciate the question you've posed as there seems no way of predicting currency values at all; and yet these analysts continually imply that it's down to one or other specific indicator -- like whether or not the Fed raises rates; which they have seventeen times running, and yet the dollar is barely treading water. So how DOES this rationale work in respect of sterling's magnificent value?

And I've also read speculations that the impending introduction of a Euro-based oil bourse in Iran has had the effect of coaxing the reserve holdings of various countries into the Euro camp, which analysts describe as one of the reasons Euros have pushed up over 1.30 from time to time and then retreated as the bourse doesn't happen on schedule. But then the date for introduction of the bourse retreats further and further into the future, and the Euro has never fallen back to original levels.

But Sterling? Why Sterling? It stands alone and it's based on the thin air of inflated property values, growing unemployment and a dwindling manufacture sector. And even with the current 1/4% rise in BOE rates, investment in sterling is still well under the US base rate of 5.25.

Another interesting feature of BOE rate increases is that they seem to make no difference to what account holders are paid. On which basis one wonders even more what this rate business is truly all about since rate increases benefit only the banks. Meanwhile rate lowering is a gesture aimed at addicting the consumer to debt. The currency market mentality, whatever it may be, is hostile to bank customers in any case.

Wednesday, August 9, 2006 12:12AM Report Comment

7. indiablue19 said...

Sorry, lead line didn't print. Above comment is in response to "Such Short Memories Said...."

Wednesday, August 9, 2006 12:16AM Report Comment

8. paul said...

Currency speculators are shorting the market. If you catch the tide turning (i.e. the beginning of a series of rises in rates) then you can be sure that it will go up in value and make money.

The BofE has held off raising rates for so long that they are well behind the curve. Consequently everyone and their aunt piles in to get a peice of the action.

And that's why the currency has gone up in value. It will be short lived - don't worry.

Wednesday, August 9, 2006 12:31AM Report Comment

9. Emptywallet said...

Remember there's much more to a currency's relative valuation than interest rates. The low level of the dollar recently has little to do with rates and more to do with America's massive twin deficits.

Ultimately, like anything else economic, it is supply and demand that drives prices and this is linked to beliefs about future price movements predicted by a whole host of different statistics, politics, events etc. etc.

Wednesday, August 9, 2006 08:43AM Report Comment

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