Weak Pound

Discussion in 'Economics' started by Detmold_Drunk, Mar 12, 2013.

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  1. Can one of our resident financial experts explain, (in very,very simple terms why the Pound is collapsing against just about every other currency in the world.Yet the LSE is forging ahead?
     
  2. A weak Pound means that a Dollar or Euro is worth more pennies than it has been previously, which means that UK goods for export, while costing the same amount of Pounds, cost less in Dollars or Euros. This makes it attractive for foreigners to buy stuff from us, which puts money into our economy, which puts us in a better position.
     
  3. Grumblegrunt

    Grumblegrunt LE Book Reviewer

    speculators and hedge betting against the currency to up their bonuses. the followers get jumpy thinking its going to crash further so dump currency for stock or metals which drives down the currency again and the stocks go up, traders make money whatever happens as they will buy the cheap currency having made a profit then try to sell it again by forcing it up again.

    that's how I see it anyway, america is having a panic at the moment as wall street is expecting another bubble to burst after huge gains.

    those big fines don't pay themselves. :)
     
  4. Alsacien

    Alsacien LE Moderator

    There is no simple answer, many factors are involved.
    However, just think of it as investors need to put money somewhere, and quality equities are better than Sterling looking forward at the moment in terms of at least maintaining value.
     
  5. Alsacien

    Alsacien LE Moderator

    Unless you are a net importer and your exports also depend on imported raw materials......

    Keep in mind many basic need commodities are priced in other currencies, eg oil.
     
  6. Conversly it means that everything we import, such as gas, oil, Becks, BMWs, etc, etc costs more too.
     
  7. So if we import more than we export.....We get skinter quicker?
     
  8. Yes, but you can increase prices at home to account for the rising price of imported goods, and the buying public just have to accept these price rises. It's pretty much like giving everyone a pay-cut by stealth. The companies will still make their profits, providing people are stupid enough to keep paying for things like food and fuel.
    Either way, we will be getting skint quick.
     
  9. Alsacien

    Alsacien LE Moderator

    Not automatically.....now you are into economic theory.

    Bastiat [Monetarist] for example would say that the value of the 100kg of metal you import from China to build a Jag, cost 100 quid in China, which you then pay import duty on. Then you build your Jag and that metal increases in value to X. Then you export it to Russia where the value is Y. You take your Y and buy vodka, which you then export to China, and flog it for Z and buy more metal.

    Simples....
     
  10. well yes, but this effect is somewhat "tempered" by the fact that we have to buy in the raw materials... sheffield no longer make steel, but are factors for swedish and german specialized steel products... I have just spent a fortune on the latter.I will end up exporting most of my output, but then you realize its the same for abrasives... German quality having no competitor (as far as I can see) again.
     
  11. Could be partly due to QE and where that money has been used.
     
  12. Alsacien

    Alsacien LE Moderator

    Correct.
     
  13. Yes, but short term, your product which cost $1 per unit yesterday costs 99c today. If it was competitively priced against the German product yesterday, it is even more so today, especially as, in Dollar terms, the price of the German product has risen. So without you doing anything, your product has suddenly become more attractive compared to the German than it was yesterday.

    Long term is a different matter, but the original question was why the Stock Exchange was moving in a different direction to the Pound.
     
  14. Alsacien

    Alsacien LE Moderator

    That is actually a common misconception when considering European exports in the global context.
    If you analyse what European countries actually flog beyond the EU (and to a large extent within it for that matter), you will see it is very much quality goods, brand names, niche products, specialised technologies etc etc.
    You don't buy a Kia over a BMW just because its cheaper....
     
  15. Because the Stock Market and the real economic wellbeing of this country are entirely seperate, indeed some might suggest mutallly opposed.
     
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