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Pound Falls to All-Time Low vs. Euro

Unspeaked

Unspeaked

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Original poster
Dec 29, 2003
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I meant to post this the other day, but on Monday, the British Pound fell to an all-time low vs. the Euro...

(By the way, it's actually higher now than what's quoted in the article - a euro is .83 pounds!)

Pound falls to all-time euro low
By Pan Pylas, AP Business Writer

Pound falls to all-time euro low on expectations of aggressive Bank of England rate cuts

LONDON (AP) -- The pound fell to an all-time low against the euro Monday after British producer price data raised expectations that the Bank of England has room to cut borrowing costs even further.

By mid-afternoon London time, the euro had risen to 0.8208 pounds, beating its previous high of 0.8195 pounds recorded in early September, before drifting back down to around 0.8180 pounds.

The latest bout of pound selling came after official figures showed British manufacturers' input prices fell 5.6 percent in October from the previous month, the biggest fall since records began in 1986. And output prices -- goods heading out the factory gate -- fell by a monthly 1.0 percent, again the biggest monthly decline since records began.

The pound has also taken a battering against the dollar in recent weeks, now trading around $1.57 and down from over $2 in July.

Analysts said the figures, which come ahead of Tuesday's consumer price inflation data, give the Bank of England's rate-setting Monetary Policy Committee the green light to continue cutting borrowing costs aggressively, following last week's startling 1.5 percentage points decrease in the base rate to 3.00 percent, its lowest level in over 50 years.

Lower rates can weigh on a country's currency by reducing yields on interest-bearing investments as investors take their money elsewhere.

"There's a dovish sense around the British economy and today's producer price numbers suggest there's room for maneuver on the inflation outlook and that has pushed the euro higher against the pound," said Daragh Maher, deputy head of global FX strategy at Calyon.

Though the European Central Bank is also expected to cut interest rates in the months ahead, the markets reckon that the Bank of England will be more aggressive in its monetary policy.

Last week's rate cut by the Bank of England took rate to their lowest since the 1950s, and lower than the European Central Bank benchmark rate, which was cut by only half a percentage point to 3.25 percent.

As a result, the benchmark rate in Britain is now lower than in the euro-zone for the first time since the euro was introduced in 1999, meaning investing in pounds will garner lower returns than investing in euros. That difference could swell over the coming months if the Bank of England cuts rates more savagely than the European Central Bank, as anticipated.

"The ECB seems more reluctant to go the more aggressive route than the BoE," said Calyon's Maher.

There's even speculation that the Bank of England will cut interest rates to below 2 percent for the first time since it was founded in 1694 in the reign of William and Mary. Its key rate fell to that record low several times in the 19th Century and in 1939-1951.
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that is a really bad sign because the Euro is falling like a rock against the dollar right now as well.
 
IJ Reilly said:
A bad sign for whom? I'd been contemplating a trip to the UK next year, but the value of the dollar was holding me back. Looks like we may be going after all.
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true. Good sign for the US traveler bad sign for England.

I was reading really the huge boost in the dollar and the yen is because those 2 currency are consider the "safe" currency in economic hard times.
 
Rodimus Prime said:
true. Good sign for the US traveler bad sign for England.

I was reading really the huge boost in the dollar and the yen is because those 2 currency are consider the "safe" currency in economic hard times.
Click to expand...

I'd think the euro would also hold up pretty well in bad times.

And before some of our British friends mention it, the pound sterling is the currency of the entire UK, not just England. ;)
 
I don't think it's that bad news for the UK given the current situation. A weaker £ means exports are more competitive so that gives UK exporters a boost. Import prices are up but inflationary pressures aren't exactly huge at the moment!

I've always thought the € was undervalued in the past as it's a young currency so has had to build up a reputation. The £ was probably overvalued as well so although it was nice for Brits travelling abroad, it wasn't really a long term position.
 
My gramps is off to Germany tomorrow, booked it last minute so the flight was quite expensive and the conversion rate leaves him with less holiday funds. Unlucky, I spose!
 
IJ Reilly said:
I'd think the euro would also hold up pretty well in bad times.

And before some of our British friends mention it, the pound sterling is the currency of the entire UK, not just England. ;)
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you should look at the Euro vs the Dollar. This summer the 1 Euro was worth over $1.60. Now today it the 1 Euro is worth $1.25 and falling.

And think this summer everyone was think the dollar was worthless and now it is flying up in strength compared to all other currency other than the yen.
 
IJ Reilly said:
Right, for about six months. That's about the full extent of the time it was trading at much of a premium against the dollar and the euro. Maybe a year.
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I don't know about that.

I consider anything over $1.70 - certainly over $1.75 - to be a pretty good premium (traditionally, the dollar was around the $1.50 level we're at today versus the pound) and if you look at this chart, you'll see it's been in "premium" territory since 2004:

5y



And here's the 5 year chart of the pound versus the euro, which looks even more extreme:

5y


And neither of these charts adequately represent the recent days falls to levels of $1.48 and $1.18 respectively...
 
Rodimus Prime said:
you should look at the Euro vs the Dollar. This summer the 1 Euro was worth over $1.60. Now today it the 1 Euro is worth $1.25 and falling.

And think this summer everyone was think the dollar was worthless and now it is flying up in strength compared to all other currency other than the yen.
Click to expand...

Not me. When I heard all the griping from folks abroad claiming that they were being "ripped off" by Apple's pricing entirely on the basis of their soaring currencies, I'd always suggest, wait a few months, this may well change (and it has). So taking a bit more of an historical perspective, it wasn't so long ago that the euro was worth less than one US dollar. For the time being, it's come down from historical highs against the dollar. That's about all we can say. Next week, who knows?

Unspeaked said:
I don't know about that.

I consider anything over $1.70 - certainly over $1.75 - to be a pretty good premium (traditionally, the dollar was around the $1.50 level we're at today versus the pound) and if you look at this chart, you'll see it's been in "premium" territory since 2004:
Click to expand...

I'm familiar with these charts. I don't know the average, but the pound has traded mainly in the $1.50-1.70 range for many years, with occasional ventures above and below. Certainly $1.70-1.80 isn't much out of that range, but when it traded above $1.90 for an extended period, that was a real premium by recent standards. Though the recent plummet is dramatic, it's too soon to say that some sort of fundamental currency revaluation is occurring. Probably not.
 
IJ Reilly said:
I'm familiar with these charts. I don't know the average, but the pound has traded mainly in the $1.50-1.70 range for many years, with occasional ventures above and below. Certainly $1.70-1.80 isn't much out of that range, but when it traded above $1.90 for an extended period, that was a real premium by recent standards. Though the recent plummet is dramatic, it's too soon to say that some sort of fundamental currency revaluation is occurring. Probably not.
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All I'm saying is that after a brief flirtation with the $2 level in the late 80s, the pound settled down in the early 90s and never even approached the $1.75 until 2004. Since the, it didn't fall below that level until just now.

Yes, we don't know where it will go from here, but it looks increasingly like we just experienced a 4 year spike.
 
I am less likely to buy anything right now from the US and before i did use to import stuff over. It is just not worth it anymore and other people are saying the same as well.
I would also consider putting of travelling there as well if i wanted to go on holiday somewhere. Less people are likely to travel to the US now from abroad.
 
Unspeaked said:
All I'm saying is that after a brief flirtation with the $2 level in the late 80s, the pound settled down in the early 90s and never even approached the $1.75 until 2004. Since the, it didn't fall below that level until just now.

Yes, we don't know where it will go from here, but it looks increasingly like we just experienced a 4 year spike.
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Sure it did. When I was living over there for several months during the early '90s the exchange rate was in the $1.65-75 range the entire time. I can't find any charts going back that far, but it was so. In all the trips I've made to Britain over the years (since the early '70s), I can recall only one time when the exchange rate was more favorable than $1.50.
 
IJ Reilly said:
Sure it did. When I was living over there for several months during the early '90s the exchange rate was in the $1.65-75 range the entire time. I can't find any charts going back that far, but it was so. In all the trips I've made to Britain over the years (since the early '70s), I can recall only one time when the exchange rate was more favorable than $1.50.
Click to expand...

This page has a chart going pretty far back:


dollar-recent.gif


I don't see how someone could look at that and not think there's a distinct spike starting in 2004 and ending the past month or so...

(Or, if nothing else, a 10-year lull between 1994 and 2004)
 
Unspeaked said:
I don't see how someone could look at that and not think there's a distinct spike starting in 2004 and ending the past month or so...

(Or, if nothing else, a 10-year lull between 1994 and 2004)
Click to expand...

Good chart, thanks for finding it. You can see the "spike" in 2004-07 repeating a similar pattern in 1990-93.

We're probably not going to settle this one way or another, but clearly this is a big and dramatic move down for the GBP, but also pretty clearly, as the chart shows, these things do pass. All this really means is that a nice window of opportunity has opened up for Americans visiting Britain, a window that wasn't open just a few months ago, and might not be open a few months from now.
 
IJ Reilly said:
Good chart, thanks for finding it. You can see the "spike" in 2004-07 repeating a similar pattern in 1990-93.

We're probably not going to settle this one way or another, but clearly this is a big and dramatic move down for the GBP, but also pretty clearly, as the chart shows, these things do pass. All this really means is that a nice window of opportunity has opened up for Americans visiting Britain, a window that wasn't open just a few months ago, and might not be open a few months from now.
Click to expand...

Yeah, like you mentioned yourself, I've been looking more into taking a trip over there, and I'd imagine many mainland Europeans are, too, with the euro's improved exchange rate, so it's got to be good for tourism.

I just wish the flights weren't so expensive!

Another interesting thing about that chart - look at 1985, the first and only time the dollar and pound approached parity (in fact, I remember reading once that the two currencies actually did reach parity in the middle of the day at one point in time during that period).
 
Unspeaked said:
Yeah, like you mentioned yourself, I've been looking more into taking a trip over there, and I'd imagine many mainland Europeans are, too, with the euro's improved exchange rate, so it's got to be good for tourism.

I just wish the flights weren't so expensive!

Another interesting thing about that chart - look at 1985, the first and only time the dollar and pound approached parity (in fact, I remember reading once that the two currencies actually did reach parity in the middle of the day at one point in time during that period).
Click to expand...

We made one trip over there when the GBP was around $1.30 or something like that during the mid-'80s. That was also the days when a respectable B&B could be had for £8 per person. I remember during that short period when the pound came close to $1.00, Americans on the East Coast were flying over to London for weekend shopping trips. Didn't last -- these things never do!
 
IJ Reilly said:
A bad sign for whom? I'd been contemplating a trip to the UK next year, but the value of the dollar was holding me back. Looks like we may be going after all.
Click to expand...

Sorry if it's a bit irrelevent, but why do people actually want to come to England? I'm all for tourism to help the economy, but, as a Brit myself, I wouldn't know why people would want to come here on holiday! Unless your going to London or something to see the sites I suppose. One tip if you do come here though-watch a Premier League game, the Premier League is the best League in the world and the atmosphere is incredible. If you can try to see Liverpool, Chelsea, Arsenal or Man U. It will be money well spent!

Wow I do drift off topic don't I??!?:D
 
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