The Dollar/Pound exchange rate is set well above the 2:1 ratio now. A great time for a holiday to the USA where even tourist rates are approaching $2 to the £. This is likely to stay that way for some time. In fact if anything the macroeconomic situation suggests the pound could go to $2.05 or higher. Interest rates in the US are probably staying where they are and ours could be going up; this implies a strengthening pound.
It is a similar story for the Euro too, as shown in the graph below (thanks X-rates.com!):
The Euro, based on Germany's growth and flight from the Dollar, is also strengthening against the Dollar and other major currencies.
An over-valued currency almost always presages the end of a boom and in the same way a weak currency often presages a time of expansion. Anatole Kaletsky put this well in the Times today.
My take on this though is that the major economies of the world are engaged in mercantilist policies as regards their currencies. America's huge external debt means it is happy to devalue this to reduce any internal effects. China is pegging the Yuan to the Dollar to hold up its exports and Japan is still in a nice export growth phase after its very weak period for the Yen.
The result of all this that the countries of Europe are having to put up with currency changes that have no relevance to their economic situation. For us it means that our exports will suffer again and all the associated industries, as well as Tourism. For the Euro area it is much worse, Spain is already in a near-slump and yet its currency is very strong. Italy too is teetering with excessive debt as always; which is now going up in value very quickly. Even France is unhappy at the effects of the high currency on its economy. The Euro was never a single currency area and it seems the economies have not converged with globalisation. So now a single policy across Europe is showing the cracks in the System.
Unless there is a huge macroeconomic change these internal pressures are only going to get worse. A bumpy ride for Europe.
A question for the readership, would the collapse of the Euro be the factor that unwound the wider European 'EU' project?