Interest Rate Up, Sterling Down

Open thread.

Right at this minute (13:10), Sterling is lower against both USD and EUR.  Discuss!

ND 

[Personal interest:  I am long both Sterling and USD.  And, of course, heavily exposed to the UK economy in general.]

Crisis hit Pound to hit parity with Euro €

On ND's advice I am trying some different header titles.

There was a flash crash in the pound earlier today in Asisa, these things can happen when over 90 of trade is done by robots who are tracking news and every small event that may impact the markets (even this website gets hundreds of bot hits per day, likely for this reason).

Market sentiment in the days of algorithmic trading is a tough beast, as the Pound gets hammered and all sorts of nonsense is spoken about hard Brexit (as if there was another choice - again, remoaner fantasising) and how bad that will be. As such, I won;t be surprised to see the Pound hit parity for a while with the Euro and even the dollar may touch less than $1.20 for a few days.

The thing is, with a huge current account deficit and a desperate need to increase exports and FDI, then a falling pound is just what we need. OK, so a bit miffed about holiday money, but there you goes; also that is the ONLY downside I can yet see to Brexit so far. Everything else is good news, even the falling pound is just what we need at a macro-level.

Brexit is turning out just like 1992. The UK fell out of the ERM, the Government was humiliated, the recession was still working its way out of the system, everyone felt the country was going to the dogs. Fast forward a few years and it was the start of one of the longest economic booms in our history

QE Works!

So some years after the Uk and US did QE, the Eurozone has tried the same. And to no ones surprise it has had the same effect.

Along with the currency crisis, the launch of QE has seen the Euro plummet in value versus the dollar. To the point at which is is not below 1.08 to the dollar and so veyr near to parity - with the direction of travel suggesting that parity maybe reached. With the Pound hitting 1.40 to the Euro, my summer holiday to France is looking that bit cheaper too.

In the main, this is good news for Europe, a lower currency will help Europe be more competitive against Asian and American economies and help it climb out of its long slump.
Also QE has pushed down bond rates, even for Greece, averting a return of the Debt crisis of 2011, for now.

However, there are dark clouds, Germany benefits the most as it exports the most - A D-Mark would surely have parity with a Pound Sterling by now. Thus the Southern European nations cannot export internally in the Eurozone at good rates and this is a big challenge to the Eurozone periphery.

Also, it suggests the long-term 'austerity' (also known as sanity and being able to sack people for underperforming) is unlikely to be followed through. Of course too, if you are a saver in Europe then this trend is not your friend.

Overall though, the best thing to say is its about time...