Question re US Dollar

eamon

Hello Folks

During lunch either yesterday or today on whatever news media it was. The presenter/reader said that the US$ was beginning to fall in the forex markets and this is all related to fears with the US indebtedness and that it could technically go bust. This has got me pondering the following:
Given that oil is largely traded in US$ what will do for fuel pump prices in the UK? In a similar topic I'm led to believe that energy supplies (all types) are now traded globally and subject to market forces. What currency is used? and how will this impact on the UK consumer?

I look forward to your thoughts.

Eamon

purch

A weaker USD, leading to a stronger GBP would make Crude Oil cheaper for the UK.

The effect on UK consumers will be zero, as this won't be passed on at the pumps.

Loughton_Monkey

Apart from a very minor fall today, the $US continues to hold up well against the £UK

The current US 'problem' is a technical one. Almost self imposed due to budget caps. Their underlying problem, though, is not necessarily in a different order of magnitude to our own, and so there is no reason to expect any major USD/UKP fluctuations.

It is China who hold all the trump cards. Unlike us, or USA, they control their own exchange rate. They are no doubt waiting for the 'right moment' to put the boot in and destroy USA economy forever. But I don't think it's yet.

gagahouse

Loughton_Monkey wrote: »

Apart from a very minor fall today, the $US continues to hold up well against the £UK

The current US 'problem' is a technical one. Almost self imposed due to budget caps. Their underlying problem, though, is not necessarily in a different order of magnitude to our own, and so there is no reason to expect any major USD/UKP fluctuations.

It is China who hold all the trump cards. Unlike us, or USA, they control their own exchange rate. They are no doubt waiting for the 'right moment' to put the boot in and destroy USA economy forever. But I don't think it's yet.

If they destroy USA economy they destroy themselves, they are actually a net importer ex USA trade. Why do you think they so willingly recycle their surplus by buying US debt in devaluating $ fiat, because that's the only way the US can fund it's current account deficit and continue to buy Chinese exports which fund Chinese imports from the rest of the world.

The US asked them to break their $ peg so that Chinese exports become more expensive, they refused as they are wedded to a mercantilist model, so they countered with QE which creates Chinese domestic inflation and improves the terms of trade for the US relative to China.

I would argue that the Chinese are actually the weaker in the relationship and that the US holds the trump financial and military (should it come to it) cards.

Generali

Very insightful post gagahouse. Is that true about the trade balance? I will have to check you know!

Loughton_Monkey

gagahouse wrote: »

If they destroy USA economy they destroy themselves, they are actually a net importer ex USA trade. Why do you think they so willingly recycle their surplus by buying US debt in devaluating $ fiat, because that's the only way the US can fund it's current account deficit and continue to buy Chinese exports which fund Chinese imports from the rest of the world.

The US asked them to break their $ peg so that Chinese exports become more expensive, they refused as they are wedded to a mercantilist model, so they countered with QE which creates Chinese domestic inflation and improves the terms of trade for the US relative to China.

I would argue that the Chinese are actually the weaker in the relationship and that the US holds the trump financial and military (should it come to it) cards.

I don't overly disagree with that. That's why I said "But I don't think it's yet."

My understanding all the time I was in China was that America are frightened about China revaluing so that China would receive cheaper imports from the West, and the higher cost of imported goods for the West would 'kill' their already sick trade balances.

It is also my understanding that the only reason USA 'want' them to do it is so that the inevitable damage to the West will be felt in a slower (and perhaps more controllable) way.

China, on the other hand, are happy to keep broadly to status quo because they are getting financially more powerful by the minute. They want to build up the muscle first, and then 'choose their moment'. Yes, of course they are fully aware where their customers are, and they want solvent customers. But obedient customers are also of value.

I would add that the Chinese trade deficit with some western countries is a 'healthy' deficit. It's mainly items used to 'invest' and help build their economy. Western defecits, on the other hand, are unhealthy, consisting largely of importing to consume.

Mr_Mumble

Generali wrote: »

Very insightful post gagahouse. Is that true about the trade balance? I will have to check you know!

I'll check for you




All that Aussie iron ore and copper costs a lotta mulla!

Ark_Welder

The USA is not frightened of a revaluation, the USA wants a revaluation. China's exports are likely to decrease when a revaluation takes place, and it does not yet have sufficient internal consumerism to take over. A higher revaluation of the remnimbi should help to lower the Chinese rate of inflation.

http://www.bbc.co.uk/news/business-13356739