Exchange Rate

[Ian]

Hi

The recent unexpected statement by the Governor of the Bank of England which caused the exchange rate to slip again to 1.12 € for a GBP apparently "took everyone by surprise" (meaning financiers, banks, etc, I suppose).

However, the whole thing got me thinking and I've concluded that there's a covert government plot to keep the exchange rate around this level.

Why? Because it's bad for us converting from GBP to euros but it's good for people converting from euros to GBP and the UK government wants to get people coming into the country to spend money whilst discouraging people from coming to euroland to spend money.

I also wonder if, in the unlikely event of Gordon Brown winning the next General Election, he has plans to enter the single currency and the present exchange rate is more attractive to the UK than the one in May 2006 when it was 1.46 € to the pound.

Any wisdom out there?

[Ian]

Mervyn King's Swedish visit rattles pound over policy fears

The pound dropped further on Monday as it emerged that Mervyn King had just visited Sweden, where the central bank has imposed a radical negative interest rate policy on its banking system.

By Edmund Conway, Economics Editor
Published: 9:25PM BST 28 Sep 2009

Sterling dropped against a basket of other currencies, extending its recent run of falls. It came as the Bank of England confirmed that its governor had met with Riksbank officials during a visit late last week to talk to the Royal Swedish Academy of Engineering Sciences.

Speculation is rife in the City that the Bank may follow Sweden's lead and impose a charge on a proportion of cash that banks around the UK keep in its vaults. Although Mr King has said he is considering this, the Monetary Policy Committee did not discuss it at its meeting this month.

Bank insiders characterised the meetings as "routine and wide-ranging", but the news pushed the pound down to 78.3 on the exchange rate index – the lowest level since early April, and left it three quarters of a cent lower against the dollar at $1.5883.

Although sterling was marginally stronger against the euro yesterday, there are also growing fears that a perverse side effect of the German election result is that it could weaken the pound further against the single currency as the new government orders its Landesbanken to pull some of their cash out of foreign countries, including the UK.

Hans Redeker, of BNP Paribas, said such tactics were already being mooted in regions of the country. "The Landesbanken business model is going to be reduced from an international to a domestic business model," he said. Many German operations, including West LB, had significant UK interests which, he said, are now under scrutiny.

"There is going to be euro strength, and sterling weakness, down to euro repatriation. I assume that by the end of this year the pound and euro hit parity and sterling may even fall further."

http://www.telegraph.co.uk/finance/news ... fears.html

What the hell is this man doing? Everytime he opens his mouth or steps outside his office the exchange rate gets worse!

[Macmad]

Exchange rates seem follow a pattern...

UK interest rate low = poor exchange rate

As soon as interest rates rise then foreign investors look to sterling and the exchange rate improves.

Any financial wizards out there care to amplify?

[Ian]

am certainly not a financial wizard but as I understand it:

the stronger the British economy is against the Euroland economy = the more € per GBP

and the reverse is equally true:

the stronger the Euroland economy is against the British economy = the fewer € per GBP

so, to me, the € rate per GBP is an indicator of just how bad the British economic situation is.

It seems that in August the British Government borrowed 6,000 GBP every second of the month.

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