Shadow Chancellor says ££ pound is doomed

[fish5133]

http://www.orange.co.uk/news/topstories/1669.htm?linkfrom=feed_newsand weather&link=link_3&article=index

[TonyGosling]

The knives are out.
This really is unprecedented stuff.
What exactly does Bullingdon Clubber Osbourne know that we don't?

Crafty this because he's setting himself up as the soothsayer of the financiers pulling the rug out from underneath Gordon Brown.

The now blatant City of London PR firm called the Tories have so far failed to pin the finacial crisis on Brown and IMO they're starting to lose it.

[conspiracy analyst]

[paul wright]

Sterling drops against both the plummetting dollar and the euro
It's in freefall way above the destroyed currencies
http://www.guardian.co.uk/commentisfree/2008/nov/16/comment-will-hutto n-euro

[fish5133]

And all because of the Global Economic crisis--well who would have guessed

[Disco_Destroyer]

British pound falls to new lows on currency markets

http://www.wsws.org/articles/2008/dec2008/brit-d08.shtml

[acrobat74]

Nothing sinister here imho.

Currencies are freely priced in the market, and the market, rightly imho, feels a bit jittery about the near-term prospects of UK plc.

The fact is that the UK is, per capita, the most indebted nation in the world: too many people have been living beyond their means for too long.

Add to that

..the size of the UK housing bubble

..the disproportionate size of the financial services sector

..and the picture gets quite grim as far as the tax revenue of the government is concerned.

See article posted elsewhere (what the markets are looking for is in bold):

[fish5133]

[acrobat74]

I can't help sensing some sort of consensus in the thread so far that the fall of the pound is somehow engineered?

Erm, no. The pound was overvalued and Britain's banks are almost bankrupt.


http://www.guardian.co.uk/business/2008/dec/12/pound-euro-record-low

Honestly, we're not making this up

* Nils Pratley
* The Guardian, Friday 12 December 2008

City professionals have a withering line to describe the wisdom found in newspapers. "If it's in the press, it's in the price," they say, meaning that, by the time hacks have latched on to a trend, the peak can't be far away. The slur is outrageous but the trading strategy can be rewarding. This summer's front-page pictures of petrol forecourts displaying sky-high prices were duly followed by a slump in the oil price.

So what to make of the excitement around the prospect of sterling falling to parity against the euro? The first thing to say is that we hacks are not making this stuff up. Your correspondent can vouch for the fact that a bookshop in Hastings the other day was accepting euros at par to the pound, hoping to attract another cross-channel invasion.

Official exchange rates, however, are set by currency markets - not by marketing gimmicks of bookshops in English coastal towns or even by rip-off rates in bureaux de change. On the foreign exchanges yesterday, the pound suffered a fourth consecutive day of losses but one euro could still be bought for 89p.

Of course, the movement feels enormous when you remember the price was 72p a year ago. But parity itself is still slightly more than 10% away - that's a long way to travel. Are we really likely to get there?

A path can be sketched. Peer Steinbrück, the German finance minister, is deriding Gordon Brown's tax-cutting plan as "crass Keynesianism", which won't help to steady nerves among foreign investors who will be needed next year to provide the greatest portion of the UK's £118bn borrowing requirement. That figure is based on Alistair Darling's pre-budget report, which is three weeks old but already looks a triumph of hope.

Meanwhile, the Bank of England is in full-blooded rate-cutting mode and the governor appears untroubled by sterling's decline. The government is floating a number of ideas on how to stimulate bank lending but is dithering over which to choose. If another round of bank recapitalisations eventually proves necessary, the UK could look a basket-case when viewed from abroad.

And if a prime purpose of floating exchange rates is to allow economies to adjust and rebalance, there is little evidence of a boost for British exporters. Manufacturers' expectations for output are close to the lows seen in the 1980s recession, the CBI said yesterday. So, yes, the notion that international confidence in the UK could collapse, causing a run on the pound,
is plausible. Parity could happen.

Yet two big factors suggest the odds are still against. First, sizeable moves in exchange rates are changing consumers' behaviour already. Thomas Cook reports that Brits are booking package holidays next summer in Turkey, where the lira is floating down-

wards like sterling - eurozone Spain will be the big loser. Similarly, German and French tourists will be more likely to come to the UK, as our Hastings bookseller knows. These stabilising forces take time to be felt - but they usually arrive in the end.

Second, and more importantly, economic prospects are not so hot in euroland either. The most significant corporate announcement this week was Rio Tinto's $5bn cut in capital expenditure next year. We're talking machines, engineering tools and heavy equipment - German specialisms - and Rio won't be last big spender to go into hibernation. German industry suddenly looks horribly uncompetitive and the respected IFO institute expects the country's GDP to contract 2.2% next year. In the ugly parade of currencies, the spotlight could yet turn on the euro. Members of its supporting cast, such as Spain and Ireland, look as horribly indebted as the UK.

The euro-sterling level that currency traders are focused on is 90.2p - that was the low point recorded in 1995 (if you go back beyond the launch of the single currency in 1999 and translate euros into old German marks). Admittedly the level is close and if 95p is seen, the pull of a round number may prove irresistible.

Current levels, though, are prompting even previous bears of sterling to rethink. "If I were a UK exporter with euro receivables, the chance to lock in at, or close to, 90p to the euro is the same gift that was presented by cable [the sterling-dollar exchange rate] at $2," says Nick Parsons head of markets strategy at NAB Capital. "This is the wrong moment to start being bearish on the pound."

That sounds like common sense. The eurozone and UK economies are far more entwined than they were in 1995. Sterling, we can now see, was grossly overvalued at 70p against the euro. The current level feels about right: the bad news about the UK - and there's lots - would seem to be in the price.

[The Watcher]

[acrobat74]

The UK consumer debt has reached £1.2 trillion.
http://www.housepricecrash.co.uk/forum/index.php?showtopic=28779&hl=

That's what's reflected in the currency markets imho, together with the other factors mentioned previously (bankrupt banks, size of housing bubble & financial services sector).

As long as 'citizens' behave like imitating chimpanzees and lose their sense of individual responsibility in the herd, one only has to look in the mirror to see the culprit.

[acrobat74]

http://www.ft.com/cms/s/0/15c743ea-c8a2-11dd-b86f-000077b07658.html?nc lick_check=1

Question is: how far can the pound sink?

By Chris Giles, Economics Editor

Published: December 13 2008 02:20 | Last updated: December 13 2008 02:20

In a week when sterling’s performance has not been nearly as bad as its press, the big question is: how low can the pound go?

Last Friday, the trade-weighted sterling index stood at 79.8. Over the past week, its value has fallen sharply against the euro, but risen strongly against the dollar. On a trade-weighted basis, the pound closed on Friday at 78.8. It was not a great week, but nor was it a disaster with a fall of 1.25 per cent.

The trouble is that over recent weeks, sterling has suffered many of these mild declines. Lots of small falls add up to depreciation of more than 20 per cent.

Apart from making skiing ever more a pastime for the well-off, the issue of currency has long had the ability to strike fear into British politicians. From Churchill and the move back to the gold standard in 1925, through the devaluations of Harold Wilson in 1967 and John Major in 1992, to Tony Blair’s flirtation with the euro, sterling has regularly been a flashpoint for British politics and economics.

The architects of inflation targeting – Norman Lamont, the chancellor between 1990 and 1993, and Mervyn King, the Bank of England governor – had hoped this difficult history would be consigned to the past. And for most of the past 16 years, they have been right.

The establishment still see the currency within the prism of the past 16 years. Publicly, the Treasury is adamant that sterling should be allowed to move because, as Dave Ramsden, the Treasury’s chief economic adviser, told the Commons’ Treasury committee this week: “We know that the government does not have any kind of policy or target towards sterling.” Privately, Treasury officials say the same, but even more forcefully.

Most officials in the Treasury and Bank of England are happy the pound is sinking, thinking it will limit the depth of the recession. Their view does not come from a Panglossian belief that exporters will suddenly fill all the empty trucks leaving Dover harbour, but from the belief that fewer fully-laden ones will arrive.

The pre-Budget report cheerfully conceded that “the short-term boost to export volumes may be limited”, but added that “sterling’s depreciation is more likely to support a positive contribution from net trade to UK gross domestic product growth via the negative impact on import growth”.

But this argument has a limit even at times of few inflationary concerns. Charlie Bean, Bank deputy governor, told the Treasury committee last month the 20 per cent depreciation was “the right order of magnitude”. But he raised a scenario that scares policymakers.

“An alternative scenario,” he said, “is one where external investors lose faith in the policy framework that the UK operates under and expect much faster rates of inflation in the future or something like that which results in downward pressure on sterling now – an old-fashioned sterling crisis.”

Mr Bean made clear he did not believe Britain was anywhere near a sterling crisis and there is precious little evidence investors think it is either. In the thin credit default swap market, the cost of insuring government debt has risen steeply, but remains at a very low level. The movement of government debt yields have been comparable with those in Germany. That is the good news. The bad news is markets rarely signal developing concern in advance. If a sterling crisis arrives, do not expect a warning.

Copyright The Financial Times Limited 2008