The Pounds Recovery?

I thought I should start a new thread with this, to keep the £'s performance and rates against the baht etc separate from the Dollar.

After the UK Budget the pound has started to recover.

This morning's exchange rates were:
From the BBC website:-

£ against the baht: 48.5200
£ against Dollar: 1.49900
£ against Euro: 1.21540

Bangkok Bank £ against Baht: 48.18250 (Buying TT rate)

Sources:
http://newsvote.bbc.co.uk/news/business ... efault.stm
http://www.bangkokbank.com/Bangkok%20Ba ... Rates.aspx

I don't think it had anything to do with the budget but China deciding to let the Yuan increase in value which was reflected in a surge across most western stock markets and currencies.

The pound is down to 47.81 to the baht this morning so the recovery hasnt lasted long !
Maybe the UK budget didnt go far enough,eh !

It's not down Zidane, it's up, up on yesterday and up on the day before.

I've edited my OP to show my sources/reference points.

Bandung I don't believe it had anything to do with the Yuan floating either. That pulled the Asian currencies UP and would if anything have strengthened the baht and Asian currencies against sterling. That surge was in the event short-lived and most things dropped back the next day (yesterday). If there is to be an effect of the Yuan being allowed to rise, it will (sensibly) be very gradual and modest. (it will be managed/controlled)

I think the rise in sterling was a direct result of the UK demonstrating through its Budget, that it is putting it's house in order, and is unlikely to default on its debts or have it's credit rating reduced. Also it came to light that one of the committee members at the last Bank of England meeting voted to increase interest rates. That caused markets to realise that the next interest rate rise might not be as far in the future as perhaps they were thinking, - rising interest rates generally strengthen a currency, in that they make it more attractive to foreign investors thus drawing in foreign money.

I dont think that there is much chance of the UK defaulting.Although the economy is in a bit of a mess we are nowhere near the problems that the likes of Greece,Portugal and Spain have.
But one dark cloud on the horizon for the worlds economies was that the housing market in the USA declined last month for the first time in a while so any recovery is still fragile.

But going slightly off topic....if youll forgive me arjay
I thought the UK budget was fair but one disappointment was the rise of only 1000 GBP before paying tax to 7475 GBP,I think ??
The Lib Dems made a big issue of raising it to 10,000 GBP but now its only a commitment in the lifetime of this Parliament
If they had raised it to 10,000 GBP it would certainly have helped a lot of expats over here feeling the pinch with the decline of sterling.......not that would affect you much,arjay,with you paying 50% tax on your pension already !

Zidane wrote:I thought the UK budget was fair but one disappointment was the rise of only 1000 GBP before paying tax to 7475 GBP,I think ??
The Lib Dems made a big issue of raising it to 10,000 GBP but now its only a commitment in the lifetime of this Parliament
If they had raised it to 10,000 GBP it would certainly have helped a lot of expats over here feeling the pinch with the decline of sterling.......not that would affect you much,arjay,with you paying 50% tax on your pension already !

Yes, it would have been nice to have had it now, all in one go, wouldn't it. No problems with my pension attracting higher rate tax! I'm very much a basic rate tax payer, hence like you wanting that £10K Personal Allowance sooner rather than later!

I'm currently intently watching the exchange rates, poised ready to transfer this month's pocket money here.

Just to clarify, my prediction was a long term one. I see the current strengthening of sterling being in response to the UK Budget, and the first step in a continuing upward movement of the pound.

The exchange rate I am using as a starting point is the one from May 31st:

Note for the Record, from the Bangkok Bank Website, at today's close (31st May 2010).

Sterling TT Buying Rate: 46.78250 (and that's up from last week!!)


Currency Description Bank Note Buying Rates Selling Rates


GBP United Kingdom 46.41 48.01 46.66000 **46.78250** 47.45500

And this was my original "rationale" in response to Cookie's question, on the "Baht what up wid dat" thread:

Based on my views that:

-sterling has fallen substantially over the last 18+ months, (some 35%) and particularly so over the last 6 months.

-sterling is not part of the Euro currency and therefore should be less affected by the Euro weakness and Debt contagion issues

-sterling is now disproportionately cheap compared to the baht and many other currencies, and ultimately markets will recognise/realise such things

-whilst there are and will be concerns about the UK's level of debt, there is now a new government in the UK with a stated (and partially demonstrated) commitment to tackle the UK's debt situation

-that the new UK government will be announcing their budget/financial measures to tackle the UK's debt on 22 June, which should give the markets (sterling) confidence.

- UK interest rates will inevitably have to rise to counter inflationary pressures, (though maybe not until end of this year, beginning of next), which will tend to strengthen the currency. Indeed even the prospect of an increase will tend to increase a currency's exchange rate.

That's my (personal) assessment/views anyway.

Watch this space for further news and developments.

UMSTB

Quote from Bob Helm from the UK Budget thread:

........ the markets will see the measures as showing prudence on behalf of the government & maybe encourage foreign investment & so a rise in the value of the GPB against other currencies. Some of the money market analysts have already said that they believe the measures will ensure that United Kingdom PLC will retain it's triple A financial rating. That is certainly an important first step in currency recovery!!

Well Bob and I see to be "on the same page", even if Cookie isn't it (per Cookie's post on "What up with the baht thread)!!

umstb

Well the closing rates today were:

£ to US$ = 1.49930 having touched 1.50 earlier in the day
£ to baht = 48.55690
£ to Euro 1.21250 - having touched 1.22 earlier in the day

BBC figures

..and those are UP on yesterday, as well on the 31st May.

I see the current strengthening of sterling being in response to the UK Budget, and the first step in a continuing upward movement of the pound.

the new goverment is commited to privatisation .
IMO , this should be the end of the civil service .
the tax payer , has financed their priveleged life style for too long .

1 GBP ... 55 BHT .. in the next 12 mounths ..

This may help the Pounds recovery also.

http://uk.news.yahoo.com/4/20100626/tuk ... a1618.html

And the recovery of the pound sterling continues Cookie, -

£ up again against the dollar and the baht:

This morning:
From BBC website:
£ to US Dollar: 1.51190
£ to Thai baht: 48.93810

From Bangkok Bank:
£ to Thai baht: 48.585

This article from the BBC News tends to support my comments the other day about the prospects of increasing interest rates strengthening a currency:

http://news.bbc.co.uk/2/hi/business/10444577.stm

But it is not just a weak euro that is boosting the pound.

Sterling has also benefited from comments made by Bank of England Monetary Policy Committee (MPC) member Andrew Sentance on Monday, in which he said the UK would need to start raising interest rates soon.

Mr Sentance voted to raise rates at an MPC meeting earlier this month.

Analysts said that if inflation remains well above the Bank's 2% target rate, the pressure to raise rates will increase.

Inflation, as measured by the Consumer Prices Index, currently stands at 3.4%.

"If inflation expectations show further signs of rising, and if nominal demand remains robust, we think the MPC will become increasingly uncomfortable with the current loose policy setting," said Barclays Capital.

Higher interest rates make sterling a more attractive investment and tend, therefore, to increase its value.

Here's the rub:

As interest rates increase, the cost of borrowing increases. The affect is higher debt payments on government debt which means an increasing portion of the budget will have to go towards servicing the debt which means even less available for social programs and other spending which means higher unemployment which means a decreased tax base which means less revenue available to service the debt and other spending which means more cuts which means...get it?

Another affect is that as countries raise their interest rates, and if it is not coordinated globally, we will see currency flight to the countries with the highest interest rates. That is the point of raising interest rates, but it also means countries will be actively competing against each other. Not only does it hurt the country raising their rates (see above paragraph), but the currency of the losing country(ies) suffers. The USA is continuing on its print, print, print policy and low interest rates. If the rest of the world goes off in some other direction, then the dollar collapse will happen that much faster since the USA cannot - cannot - cannot afford to raise interest rates (see above paragraph). When the dollar collapses, the cost of things priced in dollars rises disproportionately. Things like $200++/bbl oil become the new normal. The global economy was shaking violently at $140 /bbl oil. At that level and higher, governments and economies would collapse en masse.

Just figure I would inject a dose of reality into the discussion about how great it is that interest rates are being raised. It's a temporary boost at best. The collapse is coming. It is inevitable and all but imminent. There is no way to free Willy.