Interest Rates - Dollar exchange Rates

Catti

Anyone have a realistic view on where sterling interest rates will go when the BoE meets on 8th Jan? I am interested to know if general opinion is that dealers will test $1.40 or even lower against the pound. Or do you think that lower interest rates have already been discounted at this time?

thanking you in anticipation of your opinions.

newsaver2008

I hope not because I have to change most of my savings into dollars at the end of January:( But I am afraid there is only one direction for the pound at the moment and that is DOWN:(

newsaver2008

Too late!! Just checked one currency exchange site and the rate is one pound to $1.39!!!!!

purch

the rate is one pound to $1.39!!!!!

Utter rubbish..............Cable is trading at 1.4425, it hasn't been below 1.4350 for years !!!

Or do you think that lower interest rates have already been discounted at this time?

Interest rates have very little influence on Exchange Rates in the medium to long term, and most comment on the FX markets using interest rates as reasons for movements is simplistic and often plain wrong.

From what I can gather, the general concensus in the market currently, is that GBP has fallen as far as it will in the short term against most currencies, especially the USD and that the direction will be "northwards" in the New Year.

newsaver2008

Well, I must be looking at the worst money exchange site then:)
Purch...you have cheered us all up then if that is to be the case!
In that case why are people walking into M & S and Thomas Cooks getting such appalling rates?
I heard on the news that the BoE is expected to make a cut Thursday week and another one again in the Spring/Summer leaving us with either zero or 0.5%. Would that affect your answer?

Blah99

newsaver2008 wrote: »

In that case why are people walking into M & S and Thomas Cooks getting such appalling rates?

Because retail currency exchange includes a profit and administration margin, whereas forex "is" the live exchange rate.

Myrmidon_J

purch wrote: »

Interest rates have very little influence on Exchange Rates in the medium to long term, and most comment on the FX markets using interest rates as reasons for movements is simplistic and often plain wrong.

Agreed. I would only say that in my (limited) knowledge and experience, interest rates can affect FX markets when cuts (and the reverse, etc.) - or, more particlularly, the scale of these - are unexpected, such that the market has not already priced in the decision to the fullest extent.

I am by no means certain, but I think the pound has 'overshot' the mark somewhat and that it ought to return to a higher level in the New Year - despite the negative outlook for the UK economy.

purch

Would that affect your answer?

No, not in the least.

in my (limited) knowledge and experience, interest rates can affect FX markets when cuts (and the reverse, etc.) - or, more particlularly, the scale of these - are unexpected, such that the market has not already priced in the decision to the fullest extent.

You only need look at the events of September 1992 to see what little effect Interest rates actually have on exchange rates. When people were prepared to pay 45% for overnight GBP and receive minus 7% for their D.Marks and still sell GBP and buy DEM !!!!

Relative Interest rates are usually used by the "meeja" to explain Exchange Rate movements that they cannot otherwise explain in simple terms, although there is normally a far more complex set of circumstances determining these moves.

The interest rate differentials between the USD, GBP and EUR have not altered 'hugely' over the last decade, whilst exchange rates between the various currencies have fluctuated far more.

newsaver2008

I also wonder whether sentiment comes into this and the 'meeja' are doing their bit in talking the pound down?