Why is the £ taking such a shellacking?
Discussion
From my layman's understanding, we are experiencing a dollar shortage i.e. dollars in circulation vs dollars actually owed [debt]. Here's an article on the murky world of the Eurodollar market.
Couple of Brent Johnson dollar milkshake theory videos that may help:
Dollar milkshake theory
Dollar milkshake theory - updated
DA will be able to explain - this is definitely his domain.
Couple of Brent Johnson dollar milkshake theory videos that may help:
Dollar milkshake theory
Dollar milkshake theory - updated
DA will be able to explain - this is definitely his domain.
I was mulling this over today... could it be that the uk has attracted a significant amount of dollars from Russian, Arabs, Malaysians etc whom all what their cash back. So despite the ‘safe / tax / legal haven’ status we have it’s useless when there is a war at home people need their money for.
I haven’t looked at the correlation but I’d bet it’s quite high to the sell off in oil
I haven’t looked at the correlation but I’d bet it’s quite high to the sell off in oil
Sambucket said:
News said it was mostly the fact that USA reacted much more aggressively to shore up their markets. Our stimulus was relatively small, hence £ nto doing so well, as seen as an increasingly weaker economy, relatively.
The dude wasn't wearing a tie so who knows.
This was my understanding. USA is being more aggressive. UK is flapping with it's decision making. The dude wasn't wearing a tie so who knows.
The Fed has made huge repo facilities available to maintain liquidity in the market.
Eligible securities include non-USD denominated assets, but they will receive a haircut if not USD.
Therefore, it is likely that the UK banks are jumping from GBP to USD assets in order to be able to use their full value for liquidity.
Stongle will, presumably, be able to confirm if he is around, given it is his world.
https://www.thetimes.co.uk/article/the-economy-was...
Simon Nixon
Thursday March 19 2020, 12.01am, The Times
The coronavirus pandemic is a global disaster but the financial markets clearly believe that Britain has caught a particularly serious infection. Sterling has been dropping like a stone and the pound is down more than 6 per cent against the dollar and euro in a week and, at $1.16, is at its lowest level against the dollar since 1985. Part of the plunge may simply reflect the fact that Britain is no longer considered a safe haven. With its twin deficits, a budget deficit that even before this crisis was due to start rising again and a current account deficit, Britain’s reliance on “the kindness of strangers” makes it vulnerable at times of financial stress. In this crisis investors have dumped everything in a scramble for cash in the form of dollars or euros.
But the reality is that Britain went into this crisis with serious underlying economic health conditions that make it vulnerable to coronavirus-induced damage. The most obvious of these was of course the self-inflicted wound of Brexit. Ever since the country voted to leave the EU, British businesses have had to endure uncertainty which it is now clear will only end with the imposition of disruptive new barriers to trade. The damage this has caused was already evident in the stock market. The FTSE 100 is one of the worst performing of all significant stock markets since 2018, falling 35 per cent. In contrast, the S&P 500 only fell below its January 2018 level for the first time in this crisis.
But Britain’s vulnerability also reflects aspects of its economic model. It is one of the world’s most services-oriented economies. Some services are well-suited to home-working which affords them a degree of resilience but many are not and most are likely to face a collapse in demand. The problem is that unlike industrial production, which can be ramped up after a crisis to fulfil missed orders, most services activity once lost is lost for ever. Meals not eaten will not be eaten again, plays not watched will not be watched when the curtain finally rises again, bets not made, trades not placed, consultancy projects shelved cannot easily be made up later.
Meanwhile the flipside of Britain’s focus on services is that it relies heavily on imports for much of its food and manufactured goods. That makes it vulnerable to supply chain disruptions. These have of course been amplified by Britain’s exit from the EU at the end of January. This was most clearly and alarmingly illustrated when the EU imposed a ban on the export of medical equipment including ventilators last week. That forced Matt Hancock, the health secretary, to go on TV at the weekend to appeal to British industry for help making them.
What’s more, Britain’s leading position in one of the most important services markets, finance, may once again become a vulnerability. Although the financial system is far more robust now than in 2008, the emergency measures being taken to address the crisis will crush already weak bank margins even as credit losses eat into profits. Even if British taxpayers are not once again obliged to stand behind the system, there’s no doubt that the loss of tax revenues from the City as a result of this crisis could blow a hole in the public finances from many years to come.
Another vulnerability is that about one in six of Britain’s workforce is self-employed, freelance or working on zero-hours contracts. That means they have no access to sick pay or redundancy entitlements and so will derive little benefit from the emergency measures that Rishi Sunak, the chancellor, has announced. Britain also has one of the highest levels of household debt of any advanced economy and a low savings ratio. For many people the only safety net is the limit on their credit card.
But the market’s loss of confidence in Britain may also reflect doubts over the quality of its leadership. Even before this crisis, a small post-election “Boris bounce” was fading as the government appeared determined to pursue a path of post-Brexit splendid self-isolation. It did little to dispel fears that it was preparing to exit the transition period at the end of the year with no trade deal and showed its lack of interest in the consequences by refusing to publish any economic analysis alongside its negotiating objectives. At the same time the government further spooked the markets by declaring war on Britain’s institutions. The top civil servants at all four great departments of state were said to be on a Downing Street “hit list”. The judiciary and the BBC were also in government sights.
There is some evidence that confidence has been further undermined by the government’s chaotic handling of this crisis so far. It didn’t hold its first Cobra meeting to discuss the crisis until three weeks ago. It then stunned the world last week with its refusal to follow other countries by introducing a lockdown to try to suppress the epidemic. Instead it pursued its own policy of merely trying to delay its spread while giving up on mass testing. When the inevitable U-turn came on Monday, it continued to allow schools and restaurants to remain open. The government says it is being led by science but it has yet to explain why Britain’s science differs from everyone else’s or why it didn’t start far sooner to secure the necessary equipment.
The hope must be that the seismic events of the past few weeks have delivered this deeply ideological government a stark lesson in economic reality. As one of the most globally interconnected economies in the world, Britain cannot afford to lose the confidence of global markets. That confidence has traditionally hinged on the quality of its leadership, the strength of its institutions and the depth of its global relationships. In the past few months Boris Johnson has put all of those in doubt. There is little he can do about the vulnerabilities of the economic model, but Britain’s global standing is entirely in his hands.
Simon Nixon
Thursday March 19 2020, 12.01am, The Times
The coronavirus pandemic is a global disaster but the financial markets clearly believe that Britain has caught a particularly serious infection. Sterling has been dropping like a stone and the pound is down more than 6 per cent against the dollar and euro in a week and, at $1.16, is at its lowest level against the dollar since 1985. Part of the plunge may simply reflect the fact that Britain is no longer considered a safe haven. With its twin deficits, a budget deficit that even before this crisis was due to start rising again and a current account deficit, Britain’s reliance on “the kindness of strangers” makes it vulnerable at times of financial stress. In this crisis investors have dumped everything in a scramble for cash in the form of dollars or euros.
But the reality is that Britain went into this crisis with serious underlying economic health conditions that make it vulnerable to coronavirus-induced damage. The most obvious of these was of course the self-inflicted wound of Brexit. Ever since the country voted to leave the EU, British businesses have had to endure uncertainty which it is now clear will only end with the imposition of disruptive new barriers to trade. The damage this has caused was already evident in the stock market. The FTSE 100 is one of the worst performing of all significant stock markets since 2018, falling 35 per cent. In contrast, the S&P 500 only fell below its January 2018 level for the first time in this crisis.
But Britain’s vulnerability also reflects aspects of its economic model. It is one of the world’s most services-oriented economies. Some services are well-suited to home-working which affords them a degree of resilience but many are not and most are likely to face a collapse in demand. The problem is that unlike industrial production, which can be ramped up after a crisis to fulfil missed orders, most services activity once lost is lost for ever. Meals not eaten will not be eaten again, plays not watched will not be watched when the curtain finally rises again, bets not made, trades not placed, consultancy projects shelved cannot easily be made up later.
Meanwhile the flipside of Britain’s focus on services is that it relies heavily on imports for much of its food and manufactured goods. That makes it vulnerable to supply chain disruptions. These have of course been amplified by Britain’s exit from the EU at the end of January. This was most clearly and alarmingly illustrated when the EU imposed a ban on the export of medical equipment including ventilators last week. That forced Matt Hancock, the health secretary, to go on TV at the weekend to appeal to British industry for help making them.
What’s more, Britain’s leading position in one of the most important services markets, finance, may once again become a vulnerability. Although the financial system is far more robust now than in 2008, the emergency measures being taken to address the crisis will crush already weak bank margins even as credit losses eat into profits. Even if British taxpayers are not once again obliged to stand behind the system, there’s no doubt that the loss of tax revenues from the City as a result of this crisis could blow a hole in the public finances from many years to come.
Another vulnerability is that about one in six of Britain’s workforce is self-employed, freelance or working on zero-hours contracts. That means they have no access to sick pay or redundancy entitlements and so will derive little benefit from the emergency measures that Rishi Sunak, the chancellor, has announced. Britain also has one of the highest levels of household debt of any advanced economy and a low savings ratio. For many people the only safety net is the limit on their credit card.
But the market’s loss of confidence in Britain may also reflect doubts over the quality of its leadership. Even before this crisis, a small post-election “Boris bounce” was fading as the government appeared determined to pursue a path of post-Brexit splendid self-isolation. It did little to dispel fears that it was preparing to exit the transition period at the end of the year with no trade deal and showed its lack of interest in the consequences by refusing to publish any economic analysis alongside its negotiating objectives. At the same time the government further spooked the markets by declaring war on Britain’s institutions. The top civil servants at all four great departments of state were said to be on a Downing Street “hit list”. The judiciary and the BBC were also in government sights.
There is some evidence that confidence has been further undermined by the government’s chaotic handling of this crisis so far. It didn’t hold its first Cobra meeting to discuss the crisis until three weeks ago. It then stunned the world last week with its refusal to follow other countries by introducing a lockdown to try to suppress the epidemic. Instead it pursued its own policy of merely trying to delay its spread while giving up on mass testing. When the inevitable U-turn came on Monday, it continued to allow schools and restaurants to remain open. The government says it is being led by science but it has yet to explain why Britain’s science differs from everyone else’s or why it didn’t start far sooner to secure the necessary equipment.
The hope must be that the seismic events of the past few weeks have delivered this deeply ideological government a stark lesson in economic reality. As one of the most globally interconnected economies in the world, Britain cannot afford to lose the confidence of global markets. That confidence has traditionally hinged on the quality of its leadership, the strength of its institutions and the depth of its global relationships. In the past few months Boris Johnson has put all of those in doubt. There is little he can do about the vulnerabilities of the economic model, but Britain’s global standing is entirely in his hands.
PushedDover said:
Or simply traders ‘playing’ and shorting here and there in a fluid landscape ? Versus an actual representation of the strength/ weakness of the GBP and Uk ?
Does it replicate a parasitic scenario on jumping in and out of the ‘lastest’ opportunity?
This I think. It’s crystal ball time what will each country do? How deep will their recessions be? How quickly will each country recover? Place your bets. Does it replicate a parasitic scenario on jumping in and out of the ‘lastest’ opportunity?
Gassing Station | Finance | Top of Page | What's New | My Stuff