Sterling Weakens Against Euro

Catapa

Generali wrote: »

As the UK borrows in Sterling it matters not one jot what the exchange rate is vis-a-vis the credit rating.

@Generali: Completely mistaken!

Any US or EU funds interested in lending the UK will factor in the expected exchange rate. If Sterling is expected to fall they will demand higher interest rates or they won't lend. If they won't lend or if interest rates rise the UK will default on its ever increasing debt. A UK default is even more likely as quantitative easing / cheap money has been encouraging consumption of imported goods (e.g. Korean phones, French wine, German cars, Italian shoes) and the the UK's balance of payment deficit is getting dangerously large. It is inconceivable how the UK could keep its triple A rating

The theoretical expectations for a fall in the value of Sterling is for British exports to go up and imports to decrease. Unfortunately this effect has been very small and slow so far. Despite potential future trouble in Italy, Spain, Greece et al I expect the Euro to rise above 90 pence this year.

Take your Sterling and run!

Thrugelmir

Catapa wrote: »

@Generali: Completely mistaken!

Any US or EU funds interested in lending the UK will factor in the expected exchange rate.

Banks are retrenching to National borders. So intrabank trading has fallen away. Sterling is suffering from an injection of £375 billion that no one wants.

Let the unwinding begin.