Pound collapses on dour BoE report and prospect for lower rates.

gvlewis

Dopple wrote: »

What do people think is the 6-month outlook for the pound vs dollar?
Will it stay below 1.50 on a consistant basis?

Very difficult to say. [If I could accurately predict exchange rates, I would be a very wealthy man!]

When the pound first started falling against the dollar, it was thought by experts that the pound would eventually stabilise around the $1.50 rate. However, there are a lot of factors to take into account. With turbulent financial markets, the dollar is seen as a safe refuge for money which will tend to reduce the rate.

It also depends on the policies pursued by the two Governments. If Brown pursues a vigorous policy of tax cuts/Government spending then the pound will fall further.

eeja

gvlewis wrote: »

Very difficult to say. [If I could accurately predict exchange rates, I would be a very wealthy man!]

When the pound first started falling against the dollar, it was thought by experts that the pound would eventually stabilise around the $1.50 rate. However, there are a lot of factors to take into account. With turbulent financial markets, the dollar is seen as a safe refuge for money which will tend to reduce the rate.

It also depends on the policies pursued by the two Governments. If Brown pursues a vigorous policy of tax cuts/Government spending then the pound will fall further.

Agree but please insert after 'spending'...lowers interest rates further to below those of the eurozone.

gvlewis

Not sure if I can agree with you here eeja. If the pound falls in value, then this is likely to increase inflation as foreign imports become more expensive. Thus the Bank of England would be forced to increase interest rates to support Sterling and prevent inflation.

Thus tax cuts financed through borrowing has a double-whammy effect.
1. It increases the amount of debt which at some point will have to be paid for.
2. It is inflationary - and puts upward pressure on interest rates. So although consumer spending may initially help businesses, the increase borrowing costs would have a negaive impact.

lowbrim

gvlewis wrote: »

Not sure if I can agree with you here eeja. If the pound falls in value, then this is likely to increase inflation as foreign imports become more expensive. Thus the Bank of England would be forced to increase interest rates to support Sterling and prevent inflation.

Thus tax cuts financed through borrowing has a double-whammy effect.
1. It increases the amount of debt which at some point will have to be paid for.
2. It is inflationary - and puts upward pressure on interest rates. So although consumer spending may initially help businesses, the increase borrowing costs would have a negaive impact.

I agree and the other side of this is that most imports are traded in Dollars from China and most other countries this can be most clearly seen in the oil price if we still had the $2 £ petrol would be 25% lower I back to where they were last year.

The other major problem looming is is that retailers are currently selling old stock or stock that was paid for 2 to 3months ago and the clever ones probably have currency cover for the next 12months or so they can afford to sell it at the same price once all this stock is gone then you just watch inflation go!!!!!!!!!!

There is no way they will sell cheaper than they buy and costs are going up just 25% on the currency This is what the government are really worried about so they are trying to get the economy going quicker than the rest of Europe and America. We no longer manufacture anything everything is imported so the £ needs to recover very quickly or we will be in even deeper s***. But you will not hear politicians etc talking about this! and probably rightly so!

eeja

gvlewis wrote: »

the Bank of England would be forced to increase interest rates to support Sterling and prevent inflation.

Of course that is what orthodox economics says but we are not living in orthodox times. The trio have made it clear through hell and high water interest rates should be lowered to 1 percent or even less. They don't give a toss about the pound as proven by the fact it is not even mentioned in their recent statements and by their failure to make the slightest move to support it during the last seven days that it has been spiralling downwards. Lowest against the Euro EVER

GooeyBlob

I don't think any of our politicians have a silver bullet - there isn't one. It won't stop them telling us that they alone know how to avoid a long and deep recession. A certain politician is even trying to convince us that he's leading the world out of this economic crisis - but then if you read the report of the G20 meeting in the Washington Post you'll find that he's just about the only leader who isn't mentioned. Funny, that.

Politicians have already done the damage by allowing debt - both government and private - to get so out of control. In particular, the decision in 2003 to replace RPI with CPI as the BoE's inflation target will prove, I suspect, to have been a disastrous one.