Thursday, January 10, 2008

Pound still crumbling – record low seems like a daily event nowadays

Pound at record low vs euro on rates view contrast

Sterling fell to a record low versus the euro on Thursday after an on-hold decision from the Bank of England did not alter expectations for rate cuts soon, in contrast to a hawkish message from the European Central Bank. The ice is getting thinner.

Posted by sovietuk @ 03:41 PM (920 views)
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7 thoughts on “Pound still crumbling – record low seems like a daily event nowadays

  • “bleak growth outlook and structural bear forces” ….. but Fionnuala told us that the fundamentals were sound.

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  • C'mon Correction says:

    It’s hard to see how inflation will be contained over the next six months and beyond, with the pound dropping off a cliff. Surely they won’t cut rates now; only one thing for it growth is going to have to take a massive hit on the chin in 2008 – Gordon Brown should of thought to be more prudent five years ago and keep something back.

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  • 2007: unprecedented run on a UK bank as savers desperately wait in line to get their money back
    2008: unprecedented “run on the country” as foreign investors scramble for the escape hatches for much the same reasons.

    In euro terms UK property has already lost 12% in 12 months. but who would buy it at that when it will depreciate another 20% in the next year. Looks like UK is going down.

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  • stillthinking says:

    Are we going to become the source of a new carry trade?
    Rather unfortunate really, because as somebody pointed out, expectations are just as important as the real thing. So even though they held the rates, thanks to GBs little slip of the tongue, effectively they are considered to be lowered. So we get the inflation -without- the rate drop. If GB had hinted they were going to go up, we could have had the reverse, lower inflation -and- a rate cut. I hope you are reading this GB. Controlling expectations is a great idea but not the wrong way round…
    Surely this will increase the chances of rates being held next time?
    On the subject of future inflation or deflation, on one of the links here to a link somewhere else somebody put it as a battle between government inflationary forces and the banks deflationary actions, implying there will be a dramatic winner, or an extreme outcome. I hope, that the inflation currently anticipated is not a temporary spike leading us to the exact same governance failure of the Bank of Japan all that time ago.
    A question I have is that while interest rate can’t go below zero, thereby restricting government policy, surely interest rates can’t go below the rate of inflation also,as that would essentially be free money causing an inflationary spiral which interest rates would have to best to stop, the ensuing period being terrible for society. So if you accept that inflation in the UK is about 4% really, then the BoE can’t actually lower rates much more than 1% anyway, so the BoE can’t really do anything now.
    Which leads me to the idea that if expected inflation is a short term spike, then unfortunately the only thing that the BoE can do with rates is follow the inflation value down leading to the situation in Japan.
    So really they need to drop to the minimum rate now and accept the short term inflationary difficulties, and keep fingers crossed.
    ????????????
    ????????????

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  • voiceofreason says:

    Good thinking stillthinkging.
    But inflation is caused by excessive demand pushing the price up. Lowering IRs only increases demand in the UK.

    But demand for wheat, oil, commodities is global (BRIC) , and rising.

    So I don’t see this as a short term blip in inflation. So I don’t see a risk of deflation.
    So if RPI goes to 5% and stays there, IRs will have to stay there too.
    We may get a recession and job losses, and asset price falls. We will get stagflation, not deflation.

    I think.

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  • japanese uncle says:

    Those in debt tend to wish inflatiopn while those in credit deflation. One cannot easily get rid of wishful thinking.

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  • I think gordenron wil get his wish when the value of the pound = euro is on a par ie £1 = 1euro conditions will then be right to join the euro good move gordenron.

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