OzTennis

Exchange rates don't work on fairness and thinking the rate is just about right.

3 main things are fuelling the rise of sterling against the dollar:

1 The electoral uncertainty in the UK has been wiped out.

2 The Bank of England is expected to increase interest rates later in the year and money in theory flows to where interest rates increase.

3 The RBA reduced interest rates to record lows recently and paradoxically the dollar rose a bit because the expectation was that this was the last cut (and future rises will come at some point). RBA Governor Glenn Stevens is also 'talking down' the dollar at every opportunity.

Obviously the effects of 1 will wear off soon; 2 will probably happen before any rises in Australia so all other things being equal the pound should strengthen further. However, events in China and USA can soon mitigate these things so there's always uncertainty. Certainly, in the short term, an over $2 rate seems likely.

Beoz

I thought you were a tennis coach.

alipally

it Tipped over the $2.00 mark today.......


And of course my circumstances have changed to where I'd actually prefer it to go back the other way!!

Can't win!

OzTennis

$2 will be a psychological barrier for many in the markets (will it go further, will it not?) Currently sitting at 1.9988 the official market rate after going to 2.0063 earlier in the day.

"Deutsche Bank have confirmed in their latest FX Blueprint publication they remain bullish on the GBP, just as they have been since the start of the year.

The UK election outcome reinforces their commitment to backing sterling on the back of strong investment inflows into the UK and an economic performance that keeps Bank of England (BoE) hikes on track for being delivered towards the end of 2015. Rising interest rates remain front and central to the pound's fortunes.

Markets have backed this view taking the GBP higher against three currencies that are forecast to under-perform sterling in particular: the AUD, NZD and EUR.

The pound to euro exchange rate (GBPEUR) is trading below 1.40 once more, we see the pair at 1.3982 at the time of writing. A 2015 low of 1.2744 was reached in early May.
The pound to New Zealand dollar exchange rate (GBPNZD) is at 2.1466, rallying from a low of 1.9280.
The pound to Australian dollar exchange rate (GBPAUD) saw at its best level of the year above 2.0 take place this week, up from 2015’s worst of 1.8405. The rate has now fallen back to 1.9990."

paulry

It went to more than $2.05 to the pound today

GarryP

My working assumption at the moment is to predict the exchange rate will do the opposite of what sense says it should.

With Greece looking to escape the EU you would expect currencies in the area to do worse as the contagion spreads the impact of default. Instead the pound is doing better against the aussie dollar.

So, presumably, when Greece actually does jump ship, the exchange rate will jump closer to the 2.4 level that was always considered the equilibrium level?

OzTennis

'The equilibrium level'? Todays' rate is the highest for the pound since August 2009 and $2.40 was last seen in September 2007 so how's $2.40 any sort of equilibrium? Exchange rates fluctuate, pure and simple and conditions at the time will determine the rates. Presently there has been some 'good data' published in the UK and talk of interest rate rises and RBA keeps 'talking down' the dollar and doesn't rule out another cut. Latest RBA notes suggest it is about 8% overvalued against GBP so they think the rate should be around $2.20 fwiw.

paulry

Yes, that does seem to be the way though the wheels are wobbling a bit here in Australia.

I reckon 2.4 to 1 could very easily happen over the next few months. But it's anyone's guess really.

Amazulu

Bring it on

GarryP

The 2.4 level was accepted as giving the best balance of "more expensives" and "more cheap" between the two countries. Neutral in other words.

You might notice your dates are all post GFC and thus post the UK interest rate going to zero whilst the Oz ones stayed as they were. That's an excursion that will end; unless you think that debts should attract any interest return from here on in?

OzTennis

Ok, then say neutral if that's what you mean. Equilibrium, fair and about right are often bandied terms in the wildly fluctuating world of exchange rates. I've seen $1.33 and $3.04sh in my time and $2.40 is certainly in that range.

If you are suggesting rates were not below $2.40 pre GFC (9th August 2007 is the accepted first day of the GFC - BNP Paribas action in suspending dealings with 3 US hedge funds), try:

July 2005 $2.32 or Jan 2004 $$2.36

I've got the average monthly interbank rate back to Jan 2000 if you want them. It's true the rate was mainly above these levels for much of 2000 to 2007 but I don't see any point in picking out 2 for 1, 2.4 to 1, 2.5 to 1 or anything else and suggesting the rate is going to necessarily gravitate to any level.

The markets however will take great heed of the RBA estimate of 8% overvalued to know how much more downside there is likely to be for the dollar.

Amazulu

2.4 works for me

OzTennis

Right, make it happen.

Amazulu

It will be what it will be

Beoz

And then it will move again.......