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British pound hits record low against the dollar

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Re: British pound hits record low against the dollar

#281

Post by Veen »

origin_path wrote: post #274
tialaramex wrote: post #256

Earlier quoted context omitted.

If it's about the US dollar, what important US economic news landed early in the morning US time ? For the UK the consideration is that this basically happened as the Chancellor announced his intent to fund huge tax cuts for the wealthy by borrowing. You don't need a whole lot of specialist knowledge to figure out that means the government has to sell more bonds and isn't in a position to reject higher prices for tho…

The actual move that will destroy public finances (even more) isn't the tax cuts for the 'wealthy', that's of relatively minor impact. The fiscal nuke is the energy price cap. The cost of preventing local energy prices from going over real wholesale prices is likely to be astronomical unless global gas prices fall significantly.

Fortunately, it appears wholesale gas prices are falling quickly. If the trend of the last couple of weeks continues, the energy price cap will be significantly less expensive than predicted (although there is no guarantee it will continue to fall).

https://tradingeconomics.com/commodity/eu-natural-gas

And yes, removing the higher income tax band will have little impact on the economy overall.

Re: British pound hits record low against the dollar

#283

Post by denton-scratch »

currenciessfe wrote: post #91
rr808 wrote: post #5

Crazy times it wasn't long ago that a pound bought over $2. The interesting thing this week is that the most fragile and indebted country that the EU has bailed out for 30 years straight (Italy) has elected a govt that doesn't like the EU. Good times ahead.

It's not that simple. Germany wanted a country like Italy in the Euro so it would pull the currency down and not allow it to appreciate too much (like the Deutsche Mark did). That would would be very bad for German exports.

At one time, there were rules for joining the Euro, things like debt-to-GDP, controls on government spending and so on. Germany and France, in particular, pressed for the southern countries to be admitted, despite the well-known fact that they didn't meet those conditions.

They had large pension and state-payroll obligations, and they couldn't cut that spending and stay in power. Greece tried to cut it's spending, and the government was ejected. The new socialist government was then destroyed by German bankers and politicians.

Re: British pound hits record low against the dollar

#284

Post by everybodyknows »

kypro wrote: post #252

So the bigger news here imo is what's happening in the bond market. It's now expected that the BoE will increase rates above 6% by the middle of next year. Most people in the UK are on fixed rate mortgages, most of which are 2-3 year fixes. Those who brought a home during the pandemic or fixed at a low rate typically fixed at around 1-2%. I personally fixed for 2 years at a rate of 1.7% just over a year a go when I m…

> 500,000 people are in a similar position to me.

Do not despair; watch for hints of a coming bailout. Bankrupting half a million voters has to look like poison to elected officials.

One more economically rational option in future, for example, would be imposing a principal "haircut" on lenders, down to some assessment of the by that time reduced market prices of comparable homes.

Re: British pound hits record low against the dollar

#285

Post by kypro »

mobiuscog wrote: post #266
kypro wrote: post #252

So the bigger news here imo is what's happening in the bond market. It's now expected that the BoE will increase rates above 6% by the middle of next year. Most people in the UK are on fixed rate mortgages, most of which are 2-3 year fixes. Those who brought a home during the pandemic or fixed at a low rate typically fixed at around 1-2%. I personally fixed for 2 years at a rate of 1.7% just over a year a go when I m…

You could look at the other side of things - following on from remembering how high interest rates had been, when I bought my house 20 years ago, I fixed for 5, then 10 years and am currently in the middle of a second 10-year fixed rate of around 3.5% - it was previously around 5%. I've been paying 'over the odds' if you look at how interest rates have since turned out, as you mention most people paying around 1.5->1…

The mistake I made was dramatically underestimating the volatility. I always understood rates could move up, but if they were going to have trended up to 5% in 10 years then that wouldn't be such a big problem because wages would have moved up by then and I would be able to slowly pay down the mortgage to keep repayments the same. Plus I could also afford 5% rates.

The issue with fixes is that you pay a premium for fixing longer term and you also risk interest rates being lower going forward than you fixed for. A lot of the fixes also have early repayment charges and the longer-term fixes can have very large early repayment charges (5%+). This introduces a new risk because if you need to sell your house for some reason during that fixed period you would have to pay a large fee just to exit the deal which isn't great if you've only just brought your house and don't have much equity to fall back on.

So given this I was fine with taking something closer to a market price on the assumption that rates wouldn't sky rocket over the course of the next couple of years. That why I'd have the ability to get out of my mortgage if I ever needed to.

> Neither is 'stupid' - they just have different volatility and risk.

I agree. What upsets me a little is that I don't think I was making a reckless move. We've been thinking about moving away from the city for some time so a longer-term fix was quite risky for us, although if you're sure you're going to stay in your house for 10+ years that's obviously the way to go if you want to reduce the risk of rate rises.

I believe in the US there is no early repayment charge on mortgage in which case it probably always makes most sense to take a longer-term fix.

Re: British pound hits record low against the dollar

#286

Post by Symbiote »

pavlov wrote: post #116
Mountain_Skies wrote: post #36

Earlier quoted context omitted.

Many of my friends who regularly made trips to Europe pre-pandemic have been lured into making their first trips since 2019 due to the strength of the dollar against the Euro. Probably will be many similarly attracted to the UK by the weak Pound. Guess that's good news for the travel industry even if so much else is going wrong.

I lived in London for some years and wouldn’t choose to go to the UK as a tourist in the winter. It’s bleak and damp. If the UK travel industry does benefit from the cheap pound, it probably won’t have any effect until next summer.

Take a tip from the Danish tourist board and advertise it as "cosy" (i.e. hygge).

Re: British pound hits record low against the dollar

#287

Post by rossdavidh »

SilasX wrote: post #244
rossdavidh wrote: post #209

I'm not sure it's so much a story of the British pound, as of the US dollar, given that the pound-euro exchange rate is still well within it's range for the last 5 years: https://www.xe.com/currencycharts/?from=EUR&to=GBP&view=5Y The Chinese yuan and Japanease yen are also both at their lowest value vs the dollar in recent years, and moving faster than they normally do. For each of these (UK, EU, China, Japan) there…

Are we looking at the same chart? I see it go way up at the end to a level that only matches a few previous, short-lived spikes

Yes, but at the moment it's still within the range of the previous 5 years, which is not a long time period. If it continues spiking at the same rate for weeks longer, then yes it will be unusual. But the fact that you don't have to go back very far to see multiple examples of spikes of this size or greater, means that as of this point it isn't yet that unusual.

If it keeps going for weeks at this rate, then it is a big deal, of course.

Re: British pound hits record low against the dollar

#288

Post by fmajid »

drumhead wrote: post #249

At this point the falling pound is a one way bet. The Bank of England has been incredibly slow in dealing with inflationary issues in the UK, raising interest rates by only .25 percent when inflation was rocketing. The pounds been falling for a few months and they've made no effort to prop it up. The dollar is extremely strong, but the bank has been sleeping on the job a bit as well. They're going to have to raise ra…

The pound has fallen against almost every currency, not just the dollar.

It's almost as if you can't run Reagan-style deficit spending when you don't control the world's reserve currency.

Re: British pound hits record low against the dollar

#289

Post by fmajid »

bb123 wrote: post #247
snowwrestler wrote: post #214

Earlier quoted context omitted.

Cracks me up that the argument now is “we’re in the same boat as Europe” when the argument for Brexit was that the EU was an anchor holding back Great Britain’s unique potential for greatness.

I'm not sure why you jumped to the conclusion that my observation was pro-Brexit. There's literally nothing in what I said that suggests that. I was only pointing out that it seems like its mostly factors outside of Brexit that have lead to this situation.

Of course, all the problems mendaciously blamed on the EU to justify Brexit were always really problems with UK governance in the first place, and Brexit was not going to make a difference.

Re: British pound hits record low against the dollar

#290

Post by denton-scratch »

woodruffw wrote: post #19
Amfy wrote: post #13

I wonder why the GBP is going down so much faster than EUR. If this is because of expensive energy imports, they should go down equally fast? Edit: Ahh, tax cuts and concern of larger deficit.

I'm no economist, but intentionally cutting themselves out of a massive common market probably isn't helping much.

The UK has not cut itself out of the European market, any more than the US is excluded from trading in Europe.
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