UK Leads in Race to the Bottom?

It's often said that countries are pursuing self-defeating beggar-thy-neighbour policies as regards currency: an unseemly race of competitive devaluation.   Hard to remember - though I just about do - that for Harold 'pound-in-your-pocket' Wilson it spelled disgrace; and that for his Chancellor (Callaghan), well, he Had To Go.

I was always rather impressed by the quiet, unemotional way in which Brown/Darling allowed Sterling to fall steadily and indeed rather dramatically from $2.0 in July '08 to $1.4 by March '09 in the wake of the giga-crisis: we used to run a sidebar graphic recording this, month on month.  It might have been the cleverest thing they did. 

Anyhow, to read the headlines just recently you might have imagined it was the Japanese who were most concerned to devalue.  But in the race to the bottom, taking the last three months it's sterling in the the lead!  Again, all rather quiet and unemotional - it just isn't political news anymore.  Helps that oil has fallen even faster, of course ...

We're down against the Yuan, too, over this period, though not by much: and the dollar has pushed down a bit lately.  Watch out below.  

ND

Return of the Pound; Get your summer holiday money now!

The UK Pound Sterling, long-suffering under the control of Mr. A Darling and Mr. M. King, has staged something of a rally these past few weeks.

Not long ago sinking below parity with the Euro was the talk of the town and reaching parity with the US Dollar. But like a phoenix from the flames, the pound has reached nearly 1.15 to the Euro and the US Dollar rate is a mighty 1.64 today.

Behind the rises are a big move in closing short positions on the Pound and also a flight away from the dollar into more risky assets. As such demand for dollars goes down and so the currency falls.

However, there is no sign as to whether this is a longer-term trend coming into play. More likely, this currency reversal will itself reverse when the equity markets end their rally in the next couple of months.

As such, if you are planning a trip abroad over the summer, think carefully about when you buy your currency. Now may be a good time if you can afford to put the money aside. Alternatively, watch the global markets, if there is a strong downturn the currencies will follow quickly, so don't dither.