Four reasons why the pound continues to falter

The government plans to achieve parity with the Zloty thus reducing unemployment as millions of people leave for well paid jobs in Poland.

It will not be long before the Bank of England increases interest rates. The target of limiting the rate of inflation to a maximum of 2% has been forgotten about by the Bank, which permits the continued debasement of our currency for no good reason.

The new world order is changing, the Chinese will dominate, how will the world look in ten years?.We will probably have joined the Euro by then and be a minor economy. i think we will have to start making things again,and utilising our universities to develop high tech industries and processes.I am happy the pound is dipping to give us a competitive edge our problem is short term investing by guess who the banks.

John an interesting analysis but I doubt if Sterling was ever considered a 'safe' currency. It has always suffered from volatility even on a twenty year period,. So nothing new there. What I do think is appaling is that the BoE's monetary policy members believe it is their right to spout off when ever and on whatever they like. This is highly damaging and disconcerting. If there is a policy line then it should be clearly stated and adhered to in public comments. If not then how do analysts like yourself make any kind of sense out of what is going on.

As for our economy remember some 90% plus of people are in employment. The weak currency is better than 20%unemployed eg Spain and a 30%+ fiscal deficit eg Ireland. Money is being spent especially in London (which is full of tourists) and the continent is horendously expensive. Having just returned from France I almost choked on my €6.50 espressos - and that was not on the Champs Elysees! Get a more optimistic viewpoint!

IanE has a good point. I live in France and the cost of food, petrol and DIY materials is rocketing. There are even small operators buying to order for UK expats who claim to make a profit by shopping on their behalf in the UK. When I buy specialist goods in the UK I find there are many reliable, hardworking, innovative Brits working in niche markets who reliably send out goods by carrier to Europe that we could not buy as cheaply here even allowing for the carriage costs.

I have noticed that the GBP has dropped from about €1.20 to €1.15 in a couple of weeks but there has been very little reported about it. It's nice to see an article about it.

Excuse me but the dollar has gone from the mid 1.40s to 1.58 in the last three months or so! Is that a weak pound against the dollar? Having just returned from the USA take it from me their economy is on its knees.

When the GBP falls the FTSE seems to rise. Has anyone done any analysis on how closely a fall in the GBP is related to rises in in the FTSE and whether some reasons for a fall will make the FTSE rise, like suspected inflation through QE, or reasons that when the GBP falls the FTSE 100 does not rise, like when recession is suspected. Are there any weighted equations people have to compare the two to measure the confidence in the market?

Very interesting article.

Please Mr Posen keep your lips firmly sealed until the collective responsibility of the MPC is ready to make a balanced and rational statement.

Off the cuff remarks like yours can only rock the boat.

As the £ is being kept low deliberately there is no point in expecting it to rise, but having had competitive devaluation between countries will we then have competitive inflation to pay off everyone's debts?

A timely article but one which fails to mention the possibility that these BOE 'releases' are deliberately timed to prevent the rise of sterling.

ps I haven't found HIFX very helpful recently - anyone else had dealings with them?

I emigrated to the USA in 1983, when you got $1.56 for a pound.. Today it is at $1.58, so little has changed. On a few delightful occasions over the years it has risen to around $2 for £1, which is when I have tried to change money. Overall, around $1.5 seems about the average, so the article is not entirely accurate.

Anyone who thinks the Dollar is somehow safe or stable has got to be joking: with the way Ben Bernanke and co are printing money - or creating it electronically- the Dollar will be worth as much as the Zimbabwean Dollar in a short while. The Zim Dollar, by the way, blows around on rubbish tips and is ignored.

I just drove 4,000 miles through America over five weeks and can confirm the economy is bad and not getting any better. The unemployment rate is at least double what the government claims, if you count the under-employed and the discouraged who are no longer job-seeking.

You are seeing the end of fiat money - paper money, which has been intrinsically worthless since we all went off the gold standard.

Cash will crash in a flash, ushering in the New World Order, a one world money system and all-electronic trading. The Bible calls it "the mark of the beast," by the way. It's all predicted.

I take the contrarian view and think that Sterling is undervalued and have just taken long positions GBP short both JPY and CHF. Only time will tell !

Alan F.

As I read your post I was actually agreeing with what you said.....then when I got to final sentence you revealed that you are in fact a crackpot!

It is not difficult to make a case against holding the pound (or the dollar, the euro, the yen, etc. etc.). Which would seem to be part of the reason for a strong gold price at a time when inflation does not seem an immediate threat.

Printing money is not the answer. It is a fiddle.

The price will have to be paid eventually and then it will be more expensive.

Better that we allow the pound to rise, it will be inconvenient, but it will be a reflection of our improving financial position.

Devaluation is criminal, and those that resort to it, having caused us quite a few problems already by an over 50% hike in the cost of foodstuffs and raw materials imported, and still rising. If this is being advocated, the fiddlers in the Bank of England need to be brought to book, sacked and charged with fraud, just as, for example farmers are charged if they adulterate milk with water.

Better that we cut our coat according to the cloth that we have and work. Those who will not should have their benefits pared to the bone and that we scrap the system of planning for single mothers to earn their living by breeding.

Criminals living off benefit from faraway lands should be returned, automatic deportation orders on conviction. They knew the rules, and if they cannot abide by them, let them live and be dealt with according to the laws of their land.

If there are dire consequences awaiting them, then they should not have offended here. Simplistic, perhaps. Better that we restore the rule of law than suffer a spongers charter.

There are thousands of ways to invest outside the UK if you want to be a pessimist, and many UK companies that are earning worldwide. The choice is there.

But...you will find that other places have drawbacks too and after a while you start to notice that the UK is not in quite such bad shape as you thought.

With sentiment towards the dollar being at such an extreme low, typical of lows where the trend has changed in the past the next dollar rally won't be too far away.

The faltering pound may yet be seen as the saviour of the economy in terms of lower costs of exported goods and cheaper holidays for foreign tourists. However, these factors might in some respects be the least of the benefits to been seen, as the UK witnesses the unfolding crisis in the euro zone. There, a one size interest rate fits all, rising national borrowings, soaring unemployment and widespread strikes are leading pundits to think the unthinkable - a break up of the euro zone(EZ). Such a scenario could be played out in a variety of ways, the simplest being that countries with weak economies would leave, revert to their old currencies and set their own interest rates.

Another scenario would see the complete break up of the EZ, with each country following the potential path set out for the weaker economies. Certainly the people of Germany, the weathiest in the EZ, are fed up with propping up contires like Greece and would welcome with open arms the return of their beloved Deutsche Mark.

In either of these cases, a number of EU rules and regulations which hamper trade prospects amongst its members would have to go and in turn act as the catalyst for the break up of the EU and its myriad of rules - legal and economic that have become so repulsive in the minds of the majority of the British people. This ultimate scenario, would take the UK back to the time before Edward Heath betrayed the British people into thinking they would be part of a free trading Common Market.

Jonathan re: your question

"When the GBP falls the FTSE seems to rise. Has anyone done any analysis on how closely a fall in the GBP is related to rises in in the FTSE and whether some reasons for a fall will make the FTSE rise, like suspected inflation through QE,"

We've done some analysis on this in the past. I'll have a word with John and hopefully this can be the topic of our next piece.

Mike O'Neill - sorry to hear about the issues you have had with the service. I'm keen to learn more so we can improve what we do going forward. If you have the time please don't hesitate to email me with more details mark.bodega@hifx.co.uk and I'll make sure we rectify.

Mark Bodega

Director - HiFX

What an amazing series of comments about an amazing scribblers point of view!

America's got problems, the UK's got problems too. we've both got too big financial industries and not enough advanced, high tech manufacturing, or even low tech manufacturing. The BRIC economies rely on manufacturing, when we were Great, so did we.

We need to have a clear and robust long term plan to strengthen the pound, encourage personal savings, make things better than the competition, innovate and educate our children to be best placed to fulfil these plans. Not in an idealistic left leaning way butbased on hard headed commerce.

It will be hard but we will be in a far better place than the tax and spend 'self seeking politicians' we have had to endure over the past 60 odd years.

As the advert says....simples!

Good article. I think some commentators miss the whole point of having an 'independant' pound : notably the ability to devalue it, and assist in trading our way out of debt. (Although everyone is attempting the same admittedly.) Lets have staycations. we still have some style here like Burberry et al and it will sell (allbeit often 'made in China' : given the right conditions we can and must reverse the trend. More important is the need to revalue the Yuan.