Weak Pound

#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.
 

Grumblegrunt

LE
Book Reviewer
#3
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. :)
 

Alsacien

MIA
Moderator
#4
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.
 

Alsacien

MIA
Moderator
#5
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.
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
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.
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
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.
Conversly it means that everything we import, such as gas, oil, Becks, BMWs, etc, etc costs more too.
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.
So if we import more than we export.....We get skinter quicker?
Either way, we will be getting skint quick.
 

Alsacien

MIA
Moderator
#9
So if we import more than we export.....We get skinter quicker?
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
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.
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.
 
#13
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.
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.
 

Alsacien

MIA
Moderator
#14
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.
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....
 
#16
...
You don't buy a Kia over a BMW just because its cheaper....
That's an inaccurate paraphrasing of what I wrote. If someone was considering both the Kia and the BMW, and was undecided between the two, and then the price of the Kia went down whilst at the same time the price of the BMW went up, that might be enough to tip the balance.
 
#17
Could be partly due to QE and where that money has been used.

The more new money we create, the less, over the long term each unit of that money will be worth. That doesn’t exactly encourage people to want to hold it.
My advice if your going on holiday this year is book and pay for it now!
 

Alsacien

MIA
Moderator
#18
That's an inaccurate paraphrasing of what I wrote. If someone was considering both the Kia and the BMW, and was undecided between the two, and then the price of the Kia went down whilst at the same time the price of the BMW went up, that might be enough to tip the balance.
Well the point was actually more about European exporters competing on price, which is not what they generally do as they realistically cannot.
 
#19
That's an inaccurate paraphrasing of what I wrote. If someone was considering both the Kia and the BMW, and was undecided between the two, and then the price of the Kia went down whilst at the same time the price of the BMW went up, that might be enough to tip the balance.
If someone was considering the Kia or the BMW , then thats an eccentric "flyer" ie off the graph.Its not a price consideration.. People who buy BMW buy BMW, end of.
 
#20
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.
If you wanted to buy my product now, ie waved a fist of money at me you couldnt. I have got a 1 year waiting list.. I wish I didnt have but thats because demand outstrips supply.. so I am not price dependant, but I have to buy this steel, no other will do..I will put up my price but cannot for the orders I already have.
 

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