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dollar in free-fall?
Comments
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yes, that's one of the reasons i started the thread in the first instance. it seems as though this is an 'easy' way of combatting inflation by the BofE: kill inflation and bring the housing market back to earth. our exporters would suffer but they seemed to have coped welll enough in the past when the pound was strong?This is exactly why the exchange rate has an impact on inflation and why the BoE will use interest rates to support the pound if necessary.
For example, if £1=$1.60 and a barrel of oil is priced at $80, that barrel of oil costs the British importer £50.
If the barrel of oil remains at $80 but the quid rises to £1=$2, the barrel of oil now costs our importer £40.
Higher £=cheaper imports. Conversely, our exports become more expensive to foreign buyers.
If the pound starts to fall quickly, the MPC will face the choice between rising inflation and putting up interest rates, regardless of economic conditions. If house prices start to fall and threaten to drag down the rest of the economy, this is going to be the choice facing the MPC IMHO.BLOODBATH IN THE EVENING THEN? :shocked: OR PERHAPS THE AFTERNOON? OR THE MORNING? OH, FORGET THIS MALARKEY!
THE KILLERS :cool:
THE PUNISHER :dance: MATURE CHEDDAR ADDICT:cool:0 -
free4440273 wrote: »yes, that's one of the reasons i started the thread in the first instance. it seems as though this is an 'easy' way of combatting inflation by the BofE: kill inflation and bring the housing market back to earth. our exporters would suffer but they seemed to have coped welll enough in the past when the pound was strong?
Unfortunately, it's not quite as easy as that.
Our exporters have relied on a series of devaluations in the value of the pound ever since the pound came off the Gold Standard in 1931. They were massively clobbered in the 1980s when North Sea oil came on stream properly as the pound became a 'petrocurrency' and stopped falling. A high pound will screw our exporters.0 -
Quite the opposite of the OP ... the pound is too strong against the dollar and so the interest rates should come off by a quarter point. This wont happen of course but we are storing up a heap of trouble. The deputy governor of the Bank of England this week said rates should by hiked up to slow down the London property market ... it seems that the rest of the country does not matter to him. A hike in interest rates will be counter productive for the majority of the country."I hear and I forget. I see and I remember. I do and I understand." — Confucius0
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I thought the MPC aren't meant to take the property market into consideration when setting rates
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They do not, it is based on CPI, which excludes housing costs.hughgallagher wrote: »I thought the MPC aren't meant to take the property market into consideration when setting rates0 -
King_Of_Fools wrote: »They do not, it is based on CPI, which excludes housing costs.
In that case the Deputy Governor of the Bank of England should not have spent this week spinning his reasons for wanting a hike to the media based on London house prices."I hear and I forget. I see and I remember. I do and I understand." — Confucius0 -
Quite the opposite of the OP ... the pound is too strong against the dollar and so the interest rates should come off by a quarter point. This wont happen of course but we are storing up a heap of trouble. The deputy governor of the Bank of England this week said rates should by hiked up to slow down the London property market ... it seems that the rest of the country does not matter to him. A hike in interest rates will be counter productive for the majority of the country.
no sorry i was not trying to suggest that a strong pound was good for the economy - i actually agree with you. i just can't believe the rate it's risen to so quickly. things have 'settled' somewhat today (it's basically hovering at yesterday's price). mind you, one could potentially say that given it's massive rise, it could also fall fairly substantially, and fairly soon. it almost seems like a bubble itself at this rate (think housing etc.). or perhaps it will just keep on rising after Thursday's rate increase? anyhow, good discussion this
BLOODBATH IN THE EVENING THEN? :shocked: OR PERHAPS THE AFTERNOON? OR THE MORNING? OH, FORGET THIS MALARKEY!
THE KILLERS :cool:
THE PUNISHER :dance: MATURE CHEDDAR ADDICT:cool:0 -
King_Of_Fools wrote: »They do not, it is based on CPI, which excludes housing costs.
The MPC targets CPI but does not set rates solely to keep CPI in the range 1-3%. It has become clear that there is a bubble in housing to the MPC and as such they will try to act to stop it getting out of hand (I thought it was already) but without causing a nasty bout of deflation.free4440273 wrote: »no sorry i was not trying to suggest that a strong pound was good for the economy - i actually agree with you. i just can't believe the rate it's risen to so quickly. things have 'settled' somewhat today (it's basically hovering at yesterday's price). mind you, one could potentially say that given it's massive rise, it could also fall fairly substantially, and fairly soon. it almost seems like a bubble itself at this rate (think housing etc.). or perhaps it will just keep on rising after Thursday's rate increase? anyhow, good discussion this
The interest rate rise has been almost entirely priced in to the pound for the past few weeks. According to Big Bank's FX markets report, the weakness in the dollar has been caused by fears of the subprime collapse infectnig the rest of the banking system and also technical reasons around the end of the second quarter of the year (certain types of trade will mature for example causing FX trades to have to be performed).0 -
FWIW, I got Big Bank's foreign exchange market report for last night. They see lots more dollar weakness to come in the coming months due to the belief that interest rates will have to fall quickly to prop up the US economy in light of the sub prime mortgage debacle and weak economy generally (car sales down, factory orders down). However, the US has inflation towards the upper end of the comfort zone for the Fed and a falling exchange rate will make this worse not better.
This is something I bang on about quite a bit (and anyone with any sense probably ignores me as a nutter). The Fed is looking like it's going to face some tough choices - crucify the indebted (that is the private equity industry, mortgagees and the consumer) and with them the US economy to slay the dragon of inflation or try to keep the party going for a while and let inflation rip.
Any future weakness in the value of the pound and the BoE is likely to face the same choices.0 -
$$$$$$ Keep on rising..... My USA holiday is looking better every day:jNO to pasty tax We won!!!! Just shows that people power works! Don't be apathetic to your cause!0
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