Sickly sterling heads for parity with the euro
The pound looks as sickly as the dollar, if not more so. And now, with quantitative easing being extended and interest rates remaining low, it looks like sterling may be headed for parity with the euro.
The pound looks as sickly as the dollar, if not more so. It's slumped by more than 7% against the euro and 6% against the dollar since the beginning of August, and is at a five-month, trade-weighted low. Britain has indulged in even more "grotesque money-printing antics" than America, says Liam Halligan inThe Sunday Telegraph, with the money supply up by 169% in a single year.
The quantitative easing (QE) programme looks likely to be extended further now that last week's slide in industrial production suggests the recovery is faltering. So interest rates look set to be lower for longer than in other countries engaged in QE, says Peter Garnham in the FT.
That makes the pound even more appealing as a funding currency for the carry trade, which is undermining it further. A budget deficit of 12% also needs to be tackled as this week's sell-off of government assets highlighted which will crimp future growth.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That also suggests rates will stay low for a long time, says Garnham. The Centre for Economics and Business Research expects them to stay at their current record low of 0.5% for all of next year.
It also sees the pound heading back towards parity with the euro, a view shared by several other forecasters.
-
Meta’s AI splurge rattles investors
Meta's decision to join the AI race is driving investors away
By Dr Matthew Partridge Published
-
Is it a good time to invest in the UK?
Temple Bar Investment Trust is a diversified bet on British equities and looks excellent value, says Max King
By Max King Published