/Featured Quiz4 October - Weekly Featured Quiz - General Knowledge

[chiang mai]

I offer the following for the benefit of British expats in Thailand who are wondering what may happen to their Pounds when exchanged for Thai Baht in the coming months. In summary, the value of Sterling is going to fall and this is supported by the current LIBOR rates. This is not so much a discussion point as it is for information for those who have inquired and worried recently as to where the Pound is headed.

Wednesday March 26, 10:51 AM

Forex - Pound falls below 2 usd as MPC members say sterling set to slide UPDATE

LONDON (Thomson Financial) - The pound fell sharply as the Bank of England's (BoE) chief economist, Charlie Bean, said the size of the UK's current account deficit means sterling is likely to fall.

Speaking before the Treasury Select Committee, Bean said given the size of the UK current account gap, 'sterling is likely to move to the downside'.

BoE governor Mervyn King said the Monetary Policy Committee is not 'indifferent' to the value of the pound when considering its policy options because of its impact on inflation.

The pound's falls were exacerbated when King, asked if tighter lending conditions made interest rate cuts more likely, replied 'yes'.

'Bean's comments on the pound look to have set sterling sliding and King's subsequent comments had added to this,' said Mitul Kotecha, currency strategist at Calyon.

At 10.30 am GMT the pound was trading at 1.9960 usd having been at 2.0108 just half an hour earlier. The euro had climbed to 0.7869 stg from 0.7782.

[bkk_mike]

Against the Euro - this makes sense.

But against the USD? - US has a bigger deficit, and is dropping interest rates faster than Sterling. (I'm not saying Sterling won't drop against the dollar - just that these wouldn't be the reason for it.)

[chiang mai]

It's all about interest rate cycle timing I think. The BOE is going to have little choice but to cut UK rates since their current policy of fighting inflation rather than stimulating growth is unlikely to extend into the medium term. I think what we may see later in 2008 or perhaps early 2009 is USD rates in the ascent versus GBP rates in decline with an overlap between the two.

[astromash]

This has probably been covered elsewhere.....anyway here goes......

Today, for the first time in the two years I've been interested in the sterling/baht exchange rate, I notice the off-shore rate looks better than the on-shore.

Siam Commercial is currently showing 61.55 baht to the pound – for notes (this is more or less the rate you get from an ATM I believe).

And xe.com is showing 62.80 to the pound.

[ThermalMan]

.... The BOE is going to have little choice but to cut UK rates since their current policy of fighting inflation rather than stimulating growth is unlikely to extend into the medium term. ....

The BOE has only 2 core policies:

1. Monetary Stability; and

2. Financial Stability.

To achieve those 2 policy aims the BOE adjusts interest rates, as keeping inflation under control is considered key to the policy aims. As I understand it, it was given those policy aims by the UK Government and has no discretion to change them. So to my mind a policy move by the BOE to one of stimulating growth is unlikely unless the Government changes the BOE's operating brief.

I would suggest that, given the current turmoil in world financial markets, any recent move(s) by the BOE to cut interest rates would be driven more by its policy to maintain financial stability, than by any ultra vires intention to stimulate economic growth.

http://www.bankofengland.co.uk/about/corepurposes/index.htm