Comments: Sterling flirts with $2

Sterling flirts with $2

Hi David,

I agree with your observation, another nail in the the coffin for UK exports(perhaps the last one)!
We will accelerate the exporting of jobs abroad. Trade deficit to increase. Asset price increases to hit already critical levels. Remember Mr Lamont?
A sequence of overwhelming market forces events is now unfolding, the MPC will be indeed caught between a rock and a hard thing just like the FED. The pound as a fiat currency will have only little time to bask in glory since its underpinning value fundamentals are not very different from the US dollar.
So.....when do you think the money taps will be turned off?
before or after the culmination?

Best wishes

Arik Schickendantz

p.s Cash is King.......but from which country?.....Swissie ?

Posted by Arik Schickendantz at December 1, 2006 10:57 AM

Some time not so long ago, before IMF handed out money to developing nations it required them to devalue their currencies.

If the sterling has to get stronger what can BOE do to stem this, start depreciating on account of the trade deficit? I think so.

Posted by Hitesh Damani at December 1, 2006 02:35 PM

Will the strong pound support the economy or slow it down?

Exporters to the US will be hit but then again only 10% of total exports go to the US. 50% of total exports go to the Euro-zone so cheaper input prices should boost exports overall.
Plus the BoE says that net trade will actualy contribute to growth in the next 2 years. Add to that the fact that the UK is not as export-dependent; and cheaper imports could lift consumer spending;plus an increase in the long-term trend rate of growth...........well the UK economy might be able to sustain GBP/USD above $2.
On the US side, downside risks involve a sharp slowing of the economy as US consumers save more & spend less which implies lower rates & a weaker dollar;however upside risks which mean stubborn wage inflation can only be from poor labour productivity & a fall in the trend-rate of growth which would most likely mean higher rates & a potential recession in the US.
What do you personally think David? Your thoughts would be highly appreciated.

Posted by Shaheed Jussab at December 5, 2006 03:14 AM