Why is the pound in a state of collapse ?

[John50]

That is a very interesting piece and echoed by several German economists and industrialists on the TV last night. They were not happy with the ECB lagging behind the other central banks and believed interest rates cuts in Europe needed to happen. Let us all hope so.

Good to see the £ buying 1.07 this morning, meaning the euro costs 93.4 pence.

[John50]

A bit of good news ! £ up to 1.075 meaning a euro is 93 p. I know I shouldn't but lets hope for a bit of vociferous bad press on the euro economy and some threats of ECB rate cuts.

[Armin Tamzarian]

A bit of good news ! £ up to 1.075 meaning a euro is 93 p. I know I shouldn't but lets hope for a bit of vociferous bad press on the euro economy and some threats of ECB rate cuts.

OK, here's something to start you off

Germany and France prepare to pump in more money as recession deepens | Business | guardian.co.uk

[John50]

OK, here's something to start you off

Germany and France prepare to pump in more money as recession deepens | Business | guardian.co.uk

Thankyou. I hope some of the evils sods who bet on currency rates and who have rushed to the euro like lemmings have a damned good read of that and that the press corps make a huge issue of it. They are all in the cart.

[yllig]

No-one wishes other countries to be in the soft stuff but its certainly makes you feel a little better to hear this news.

[John50]

From Money Futures

Reasons Why the Pound has Devalued against the Euro

UK Economy in steepest recession.

The UK economy experienced negative growth in Q3 2008 and is now facing steepest recession since Second World War. (industrial output collapses) Because of sharp slowdown interest rates have fallen sharply from 5.25% to 2% (and will probably go lower)


Lower interest rates are very important for weakening a currency.

Lower UK interest rates make it less attractive to buy Sterling and save money in the UK. Therefore, there are less hot money flows and a weaker value of Pound.

Housing Market.

The UK Housing Market plays a crucial role in determining consumer confidence, spending and economic growth. Recently the rate of house price falls has accelerated and some people predict house price falls of upto 30%. If house prices fell by another 15%, growth would slow down alot in the coming months. Again, this would lead to lower interest rates and a lower exchange rate. The markets are anticipating lower interest rates in the UK.

Credit Crisis.

The UK is heavily exposed to the credit crisis because mortgage lending accounts for a high % of disposable income. Mortgage lending is more important in the UK than the Eurozone where mortgage payments account for a smaller % of disposable income. With less mortgages becoming available, demand for housing is falling. Also those with existing mortgages are seeing the cost of remortgaging increase. This is putting pressure on the Bank of England to reduce base rates to compensate for the increased bank rates. As they explained the recent interest rate cut:

"The disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target."


The Euro is slowly becoming the World's Reserve Currency. With the Dollar in long term decline (and with good reason) government's and investment bankers are looking for an alternative to holding currency in the dollar; the main alternative is the Euro.
However, it is worth noting the Pound has recently been weak against the Dollar as well, suggesting problems facing Sterling in particular.

UK Current account deficit.

Relative to the EU, the UK is running a current account deficit, which puts downward pressure on sterling because of the outflow of foreign currency.
Large Rise in Government Borrowing for 2009. With government bailouts, fiscal expansion and tax cuts, government borrowing will be over £115bn or 8% of GDP. This causes lower confidence in the UK economy to pay off debt (though UK public sector debt is still lower than many of our European counterparts)

Predictions for Pound vs Euro in Next Few Months.

Now that the pound has fallen to £1 = 1 Euro, it is hard to see it falling much further. Some foreign currency dealers are still pessimistic about the Pound, so in the short term this may continue to push the pound lower. But, it should not be forgotten that the Eurozone is also in recession, so we are likely to see lower EU interest rates in 2009

The strength of the Euro is also causing problems for EU exporters.

Conclusion

The Pound has fallen on the back of depressing economic statistics. The whole Global economy is likely to experience recession, but, the UK recession has been deeper than most. Against this backdrop the pound has been weaker.

This Sunday 21st December, 2008 the euro costs 93.2 pence, the pound 1.073 euro.

[yllig]

Is there any good news.....?

[DC]

This thread started with the Pound at €1.244, that would have been an excellent time for residents to buy all the Euros they could afford.At €1.07 to the pound now,buy now or sit it out?

[yllig]

Difficult one that. We got out the max of £300 each per day that we could take from our Nationwide Accounts for a period of 10 days - started at about 1.158 and finished at 1.08. Enough euros to last us until next May/June. A balance between losing the interest and getting a better rate. Interest rate only 3% so not too much of a big decision.

You never know if you're doing the right thing as sterling could go back up to 1.20 as is predicted for March time.

[John50]

The fall continues, I much regret to say. Those financial criminals who bet on parity and who are benefitting from this won't be happy until they get their way:

£1 = 1.056 euro
Euro = 94.7 pence

[John50]

I have just checked and the rates today are identical. Perhaps the markets have now closed for the holidays ?

[yllig]

Yes strange isn't it. Rates seem going up and down between 1.065 and 1.059 for the last two days. Maybe they are bottoming out.

Another interesting money site aswell as Financial Advice, News, Help & Guides from This is Money UK is :-

Golden prospects for 2009

Went to Iceland in Torre today. There certainly doesnt seem to be any shortgage of money there. Absolutely chocka and another branch opening in La Marina in Jan 09.

[dorsetlad]

the markets are still open. If you go here, you can see the changes in real time:-

Marketwatch | Foreign Exchange Rates | HiFX plc

Brian

[John50]

Well, the exchange markets are still soldiering on regretably !

£ - 1.051 / Euro - 95.1 pence

is that a new 'low' record ?

[yllig]

No John. Unfortunately it isnt. It went down to 1.046 or thereabouts last week.