The Pound Sinks Further

Degenerate

Generali wrote: »

The reason for the Pound falling IMO is on the belief that this Government is going to cut spending while trying to maintain low base rates.

The reason that this is negative for Sterling is the opposite to what I have said a few times about why Governments borrowing big is bad for the rest of the economy, that is crowding out.

If a Government borrows a pound, it can't be lent to someone else. As the Government is the safest bet in town, any private borrower has to pay a higher rate of interest than the Government to borrow. The more the Government borrows, the more interest rates are pushed up.

Then of course the reverse is true. If the Government borrows less, market interest rates should fall. If interest rates fall, the currency falls.

The market reaction is down to a perceived change in the balance between supply and demand, not a vote of (no) confidence in the Government or their policies.

Alternative hypothesis: This isn't about the pound at all, it's a "flight to safety". American money is returning home to the safety of the dollar, other countries are divesting their Euro reserves and what else are they going to put it in but dollars? The Euro has plummeted v the dollar. The pound usually seems to tread a middle line between the two.

Same thing happened after Lehman - instead of plummeting the dollar rallied substantially.

sabretoothtigger

I have already had some issues with price points due to increased costs.....it is to USA and I price in sterling, he then pays me from US so the better exchange could cushion the cost to him.

Your costs went up probably because of the decreased worth of the pound so it sounds like two sides of the same coin.
So long as your costs havent risen more then the exchange rate fell on average over the last two years it sounds a fair argument to me

marklv

With interest rates so low, who on earth is going to buy sterling? The currency is set to continue on a downward spiral.

N9eav

Not only that, but we buy far too much imported goods, so that will only cause inflation to rise surely?

Don't forget oil, which we buy in $$$$$

Generali

N9eav wrote: »

Not only that, but we buy far too much imported goods, so that will only cause inflation to rise surely?

Don't forget oil, which we buy in $$$$$

The alternative (which I think is what is going to happen) is that less will be imported and UK standards of living will drop a little instead. It is worth remembering at this point that the stats do not bear me out right now but give it time....

fc123 wrote: »

Help....IM, Gen and others. I need to know about this.

I have an impt meet on Thursday and I have already had some issues with price points due to increased costs.....it is to USA and I price in sterling, he then pays me from US so the better exchange could cushion the cost to him.
He's a shrewd sort so I need a polite but informed sentence to say ''well, prices have gone up a bit but we can't not pass them on...but, of course *in a knowledgeable tone* I can say the price rise can be cancelled out by the drop in sterling as ...the I could quote Gen...



But.......I have to understand what I am saying so, much as I would love to scribble Gens post up my arm under my sleeve and read it out, I can't as I will get caught out.

I kind of get it........I can say the following as I understand it inside out

''' sterling will stay low as our Govt are going to cut public spending to reduce the deficit but keep IR low...hence the pound will stay low for as long as this continues.......and, so our inflationary small rise in cost price to you will be offset against this'' Therefore his margin and US price points will remain the same.

Help

I'd be trying to get him to concentrate on the price in dollars so something along the lines of "need to share the gains from continuing Sterling weakness...a price rise from £100 to £102 is actually a drop in price for you from $160 to $159.98". Best of all IMO is if you can engineer the price so you both gain.

worldtraveller

.....1.4285

inspector_monkfish

worldtraveller wrote: »

.....1.4285

it touched a low of 1.4235 overnight :eek:

fc123

Generali wrote: »

The alternative (which I think is what is going to happen) is that less will be imported and UK standards of living will drop a little instead. It is worth remembering at this point that the stats do not bear me out right now but give it time....



I'd be trying to get him to concentrate on the price in dollars so something along the lines of "need to share the gains from continuing Sterling weakness...a price rise from £100 to £102 is actually a drop in price for you from $160 to $159.98". Best of all IMO is if you can engineer the price so you both gain.

That's fantastic...I can remember that. I just have to do it in a chatty, non know-all way and we'll be fine.:)

inspector_monkfish

14:06 19May10 GBP/USD: Helped North by Rumoured Fed Buying of EUR/USD



LONDON, May 19

Cable has pushed its recovery envelope from an early NY/London lunchtime14-month low of 1.4238 to a high of 1.4349 amid a rumour that the Federal Reservehas been a buyer of the euro.

lemonjelly

inspector_monkfish wrote: »

14:06 19May10 GBP/USD: Helped North by Rumoured Fed Buying of EUR/USD



LONDON, May 19

Cable has pushed its recovery envelope from an early NY/London lunchtime14-month low of 1.4238 to a high of 1.4349 amid a rumour that the Federal Reservehas been a buyer of the euro.

Good lord what awful management speak!

!!!!!! is this envelope it is pushing?