facebook rss twitter

Pound strengthens as EC approves of deficit reduction measures

by Scott Bicheno on 6 July 2010, 15:56

Tags: European Commission, General Business

Quick Link: HEXUS.net/qayzc

Add to My Vault: x

Cheaper shiny things

The European Commission issued a statement today approving of the action the new government took in the 22 June emergency budget to reduce our vertiginous national debt. This coincides with an overall strengthening of the pound since its trough just after the general election.

"The current economic circumstances call for a decisive fiscal consolidation, while not suffocating the nascent economic recovery. The budgetary targets presented by the UK Government are in line with this strategy," said economic and monetary affairs commissioner Olli Rehn.

Prior to the 8 May general election there had been a real danger that the UK would have its debt downgraded due to concerns about its ability to service borrowing of the kind not seen since the Second World War. This could have precipitated a spiral in which new debt would have become more expensive and thus made it harder to pay off.

Currency speculators seem to have reacted approvingly of these measures too, as sterling has gained ground against not just the dollar and the euro, but Far-Eastern currencies too, as show in the screen grabs from the BBC website below.

A weak pound is good for exporters as it make our products more price-competitive. But the the UK tech channel, which imports most of its products, will benefit from a stronger pound as it makes those imports cheaper.

 

 

 

 

 



HEXUS Forums :: 8 Comments

Login with Forum Account

Don't have an account? Register today!
As always, a strengthening of the pound is good in some ways, but bad in others. Given that the government seems to be planning in export-led growth to get us out of the poop, a strengthening pound isn't that helpful.

Also, while the dollar is one situation, I'd be worried that strengthening against the Euro isn't so much a vote of faith in the pound, but rather, a reflection of considerable uncertainly about the state of, and even future of the Euro. That's not to say I think the Euro will fail, but merely the fact that the possibility is being discussed is a gross change from a few months ago. And it's not just that Greece, and perhaps others including most worryingly Spain, have problems. It's that there is a lot of groundswell of public opinion even in strong economies like Germany, worried about the fact that the Euro means that they are bearing the brunt of the bailout for Greece, and that it;s hurting German economic performance. I've seen surveys which, regardless of how reliable they are, suggest that support for going back to the DM is somewhere in the 50% - 60% bracket in Germany. They don' like the notion of paying the huge cost of bailing out Greece, and I can't say I blame them.
Saracen
As always, a strengthening of the pound is good in some ways, but bad in others.

Agreed, and the US has plenty of problems of its own. But this movement does at least indicate a bit more confidence in the quid than a couple of months ago.
Good news for the summer holidays too :cool:
Scott B;1947984
Agreed, and the US has plenty of problems of its own. But this movement does at least indicate a bit more confidence in the quid than a couple of months ago.

I had invested heavily in the chocolate coin and was waiting for parity with the pound, the way things are going I might have to eat them instead!
Scott B;1947984
Agreed, and the US has plenty of problems of its own. But this movement does at least indicate a bit more confidence in the quid than a couple of months ago.
Perhaps. I'm not saying that's not the case, but as it's a relative measure, all a strengthening against a specific currency really indicates is that, right now, confidence relative to that currency is up, which might be confidence in the pound, or lack of confidence in the other currency.

Even then, it's a tad dangerous attributing it to confidence in budget measures, because while that may well be a factor, it isn't as simple as just confidence in the budget measures, because there is certainly an element of comparison between what the budget turned out to actually contain, and what the market had already priced in about what they expected it to contain.