The currency spivs have it

[Suff]

Today.

I was looking at the £€ exchange rate, especially in the light of Wednesday's testimony by Carney, trying to work out what they are thinking. In the end the FX news seem to believe that either Carney's testimony was missed because of Trump's lack of direction on taxes, or that the markets are ignoring it and bidding the € up to punish the UK for leaving the EU.

This I think is good. The tone from the BOE and, especially, Carney, has moved from negative in November to neutral to positive in December to not only strongly positive in January but a switch away from Brexit being the biggest issue the UK has. In fact Carney was clear, Brexit is a bigger issue to the EU governments and industries; who are into UK banks for €1.1 trillion debt. So long as those governments have to continue issuing debt, then the UK banks have them at a disadvantage.

Also the ECB are clear that the outlook, whilst positive, is not going fast enough. A clear signal that they may loosen monetary control even further. Making the differential between the £ and the € even greater.

This is going to bear watching. Since late December the markets have been selling the £ down. However if you are a currency trader you ignore a Central Banker at your peril. Carney talks about forward advice and guiding the markets. But he's bound by the decision, last year, to reduce BOE MPC meetings. There won't be one in January and nobody is listening to him when he talks.

Depending on how bad this gets before Feb 2nd, the BOE may just be forced into a shock, unanticipated, rate rise. Wrong footing everyone and hammering the short traders selling the £ down. This would be like the ERM crisis where Lamont varied the deposit rates, overnight, massively, to punish the traders.

It may be that Carney thinks he has the leeway to keep rates where they are for another two months. But he's going to have to do something in March because the shock of the actual triggering of A50 is going to hammer the £ again. If he does not act to bolster it now, he's going to have to act a LOT more in April to fix the mess or his "little" inflation problem is going to become a much bigger problem requiring more pain to fix.

The spivs have it for today. I'm hoping our central banker has somewhat more Cojones than he's exhibited so far.

[Workingman]

I will come back to this around August, or when most of the post A50 triggering has washed out of the system. Till then anything could happen and I have gone past caring. The spivs can buy, sell or hold, but whatever they do will have little personal impact. I will just make sure that my children have their travel documents up to date so they can leave at the drop of a hat.

[Suff]

I, on the other hand, am impacted daily. Which is why I watch. It was my choice and no regrets. But I like to know.

What I am anticipating is a by election in which UKIP have a very good chance of smearing Labour. I suspect that wild throw a rather large sized ginger moggie into a cage full of pigeons...

[AliasAggers]

I have never been able to understand this currency business.

Why does the rate of exchange have to change, and who decides it?

Don't we have a say in it?

[Suff]

Don't we have a say in it?

Not really. When your currency becomes a Fiat Currency then you move away from fixed value and to a nominal value based upon what someone else thinks it's worth.

If you look at the Treatment in economics section the first line tells you all you need to know.

In monetary economics, fiat money is an intrinsically valueless object or record that is widely accepted as a means of payment

And that is about that.

So our currency has a "notional" value based upon what "people" (the currency traders), think it is worth, valued against the other fiat currencies. Of course the value is based on economic fundamentals such as GDP, debt, value of debt, health of the economy etc. This perceived value is also impacted by what the traders think will happen in the future.

In short the only process we have for ensuring our currency is strong is to vote for a fiscally responsible government that grows the wealth of the country, therefore growing the value of the currency against other Fiat currencies.

Equality, workers rights and so called "fair pay" initiatives tend to devalue Fiat currencies unless it is accompanied by an even larger growth in the economy to balance it. Borrowing is not seen as an economic growth.

We are where we are at the moment because the traders believed Cameron, Osborne, the BOE, the CBI, the World Bank, the ECB, the IMF and just about every other organisation which weighed in on our referendum.

The fact that ALL of the above were totally and completely wrong (in the short term anyway), has not changed the mindset of the traders. So they are selling the £ short.

The only possible way to change that sentiment is to raise interest rates. It can be done in one of two ways. It can be done with an announcement or two, followed, one or two months later, with a move. Or it can be done with a sudden and totally unannounced rate rise followed by forward advice saying that this is only one of many and that the bank will review before every meeting to see if it should NOT raise rates. Then cite the ridiculously low value of the £ as the prime driver.

Right now the Bank seems to be following the line that a lower value of the £ is the only way we'll survive Brexit. All economic evidence to the contrary.

[Suff]

€1.1756 and it's been climbing all day. $1.2622 also.

Of course there will be some profit taking. But we just broke a resistance barrier at €1.1650.

It seems the markets continue to like what they are hearing on Brexit. Which, interestingly, is the opposite of what the press are saying.

Of course there is also the Trump Effect too. Which is helpful to the UK if not to the US.

I shall revisit this again Thursday next week when the BOE MPC meets and has it's rate setting decision.

[Workingman]

Yes, the £ is doing just fine since Brexit...... if that is how people want to spin it.

27 - Jan - 2016: £1= $1.43 and €1.32

27 - Jan - 2017: £1=$1.26 and €1.17

A drop of roughly 11% against each currency. Way to go! Good job it is not performing badly or we would all be in deep 5hit.

[Suff]

I'm not talking about that, I'm talking about the change in heart since Brexit. Yes we've lost 11%. But even as late as the end of December 2016 pundits were still talking the £ back down to 1:1 with the $ and the €.

From what I see that is changing. Mainly due to Trump and partially due to the inevitable climb down of the EU "organs" in the face of UK solidarity.