Why has the value of the pound plummeted so precipitously recently? The Euro finally seems to have reached parity with the pound, and we are now seeing the lowest value of the pound in 28 years. Is the outlook for the UK really all that bad? Are we about to see the pound collapse?
I was talking to a broker friend (he’s Irish, so not really susceptible to the Torygraph paranoia, I’d think) recently and he seems to think that the pound is being devalued on purpose by the UK government (or rather, they’re not doing all they can to prop up its value) in order to make a move to the euro more palatable to British voters. Is this even conceivable? I’m not very well versed in economics, so cannot claim to understand whether this is a reasonable position to hold.
It has to do a lot with the sinking of the dollar. I did a study some time ago of currency fluctuations over time and I found it interesting that the GBP tends to follow the USD in the short term and the EUR in the longer term. In the last three weeks the USD has fallen about 10% with respect to the EUR.
Now, it is true that the GBP was worth almost 2 EUR some time ago and now it is dropping close to 1. I do not know what the causes for this long term drop may be.
I think in the long term it will be in the UK’s interest to join the Euro. I think an important reason is just national pride and that does not go very far these days. If France and Germany found it was in their interest to join the Euro probably the UK will come around to that view as well.
Wait. Tossing in the “28 years” thing confused me. You’re going back to 1980. I don’t think you really mean this.
I can remember in March of 1985(if I’m not getting senile) that the Pound was worth $1.01 US. I distinctively remember buying some coins from Europeans at a Chicago coin show and had the best buying power I had ever experienced.
If you’re only comparing the Pound vs. Euro, then you can’t go back before about 1999.
Why didn’t the UK join the Euro in the first place? I was never clear on that. Surely the French and Germans have no less national pride than the Brits.
As far as I know, and I’m not an expert, the view in the UK was that the Euro would never get off the ground, if it did, it wouldn’t last, and if it did manage to stay around, it would never be a serious currency. There’s also an argument that limiting economic policy within the UK is a bad thing (if Germany’s in recession and our economy is doing well, what policy is set?).
See here. The Bank of England measures the value of the pound against a host of other international currencies. The records began 28 years ago.
The UK is a major exporter of financial services. I imagine there has been a bit of a drop-off in demand there recently.
The value of a currency in terms of another is not in itself of any interest. The depreciating pound reflects some things that are occurring. It causes some industries to become more competitive. The BoE’s lack of interest in the value of the pound means nothing as long as the market remains orderly.
Finance and banking represent a larger part of the GDP in the UK than in other EU countries. If the City sneeze, the UK gets a cold.
Britons, like Americans (though to a lesser extent) borrow too much and don’t save enough. A German, Frenchman or Italian saves on average 15% of his income. A Spaniard 10%. A Briton only 5%. With the current restrictions on credit, more British people than Germans, etc… are going to get hit hard.
-More directly related, the European Central Bank is still engaged in its crusade against inflation, and doesn’t seem to be interested in changing its policy. The base interest rate for the Euro is higher than from the Pound, and it isn’t expected that it will be lowered much in the near future. So, it’s safer to invest in Euros than in Pounds.
Not to mention a fair amount of flag-waving jingoisim from the red tops. I doubt any government at the time would have taken the political risk. Infighting over European issues was a major factor in condemning the Tories to a decade in the wilderness.
To be fair there was a lot of that in the USA as well. A lot of columnists felt threatened in their masculinity by the Euro and took all sorts of shots against it. Even the CIA wrote some reports saying the Euro had a very bleak future. You can probably find threads to the effect in this board at that time.
Granted, I’ve been busy moving house and haven’t watched the news much lately, but I do check the news on my cell at least once a day, and hadn’t heard about this. When and why did the dollar plummet so suddenly, what with oil prices so low? The same financial hi-jinks seem to be happening in Europe as well as in the U.S., so much so that, when reading a news story, one might be confused as to which country was being discussed, were it not for the language. Of course, I did hear that the overnight prime rate in the U.S. has been reduced to essentially zero, so that might be what did it.