Could we see a Sterling crisis?

Frequentlyhere

As per the title, do you think we could enter a crisis period for Sterling?

Some might say it already is in one, but in my opinion the story so far is one of flight to the USD$, as the Euro has devalued almost as much as Sterling over the last 6 months or so, as have many other currencies (Japanese Yen looks pretty awful).

What concerns me is this Government's seeming intent to disregard anything the OBR has to say, and spend freely on tax cuts on top of a gigantic and rather loosely aimed energy bill freeze expenditure. With the cost of debt rising almost by the day, this all seems rather gung ho to say the least.

To relate this to savings + investments, what in practice if anything are you doing about it? I'm probably going to up my unhedged global tracker equity fund and hold on for dear life I think :-)

Voyager2002

'Crisis' is too strong a word. Besides, it usually means a short-term situation of high stress that is eventually resolved one way or another. What seems to be happening is (i) a global search for safe havens, leading to a rise in the dollar; and (ii) poor macro-economic policy in the UK, leading to a permanent adjustment. I predict that in a couple of years everyone will see it as entirely normal that the pound will be worth about 95 cents while the dollar will be worth more than the Euro.

What am I doing about it? Nothing: I concluded that Brexit would mean long-term decline for most sectors of the UK economy, and so virtually all my investments are in equity outside the UK. A convenient way to hold these securities is via Investment Trusts traded in London, and in sterling.

Frequentlyhere

I largely agree with you, Voyager. Just as the search for a safe haven will eventually reverse, I imagine we'll see a rebound in sterling at some point. From what point though, who knows, and to what will be the new normal, as you say it might be even lower than we're used to.

I haven't dabbled much with IT's, I'll probably stick with VWRP to achieve much the same effect.

masonic

The long term trend doesn't look very encouraging.

prowla

I remember back when the £ was $2.50.

dunstonh

masonic said:

The long term trend doesn't look very encouraging.

The trend goes back much much further than that.  

Although the current issue is just as much about the strength of the dollar as much as the weakness of the pound.

GSP

prowla said:

I remember back when the £ was $2.50.

Used to be $4 to the pound, though that’s going back a bit. Some people in banks used to get exceptionally good rates if they were visiting the States, but bought their currency in coin which helped take back the ‘loose change’ from here.

mlc2009

Could we see parity with the dollar?

masonic

mlc2009 said:

Could we see parity with the dollar?

There's a wide range of possible outcomes depending on how the situation develops, but it's not something that can be ruled out. Recent drives to increase government spending at the same time as promising tax cuts won't be helpful to the situation. Selling £150bn in gilts to fund the energy package, if that's what they intend to do, is going to have a devaluing effect.

Nebulous2

I've been reading some of Liz Truss' campaign promises / ideas today. Reverse the NI increase, fully transferable personal allowance by increasing the marriage allowance. 80k threshold for higher rate tax. Raise tax thresholds.  Scrap inheritance tax. 

A quarter of that on top of the energy support would see the pound achieve parity with the dollar before the end of this year. 

I can only assume the markets don't expect much of it to happen. The mini-budget will be interesting..... 

VWPolecat

Parity or lower by the end of November if the grown ups do well in the US mid terms.  I predict 50 cents if we start looking down the gun barrel of a Labour government. We are a country of limited resources and an increasingly ill-educated and lazy workforce.