cindyabs

Well hopefully for this month's payment.

RoadWarriorFromLP

It's because the Bank of England keeps lowering its base interest rate, and because it is expected to continue to cut the rate from the current level of 1.5%.

With the exceptions of Japan and the US, rate cuts tend to reduce a currency's exchange rate. Given the likelihood that more UK rate cuts are forthcoming, the short term prospects of the sterling maintaining its value against the dollar are poor. A $1.25-1.30 pound is not inconceivable over the short term, presuming that the BoE cuts rates again through the year.

There should be more stability and perhaps a bit of a rebound against the euro, as the ECB follows suit with its own rate cuts. They have been more cautious with aggressive rate cutting, but that should change as stimulus takes precedence over fears of inflation.

When the BoE stops cutting rates, or if it cuts them to 0%, as has the US, then that should be about the point at which the sterling bottoms out. Barring some major catastrophe, that point would probably be a good time to start buying pounds.

chartreuse

I suspect that yesterday's announcement about taking on unlimited debt to insure all the toxic assets was probably the more immediate cause of this sudden decline. Even after the last base rate cut the pound had climbed back to close to $1.50 before falling off a cliff yesterday

RoadWarriorFromLP

I wouldn't doubt that, but the trading range is anchored by the interest rate. Varying degrees of good and bad news will affect where it ends up in that range.

I would expect the pound to rebound -- not quite back to $2, but certainly above where it is now -- when the economic recovery kicks in. For those traveling on US dollars, this summer will probably be a good time to go to the UK, assuming that any of us have any money left...

zargof

Something else to consider is that there is now concern that all the money being poured into the banks in the UK is increasing the debt levels so much that it may affect the credit rating of the UK. If this does happen, then you can expect a significant drop in the value of the pound.

I don't think there will be a significant rebound for at least a year because I don't see the economy improving in the UK any faster than the US. IMO the UK is in a deeper hole, and they don't have as significant resources as the US to get out of it.

I am in a similar position to Cindy in that I have debts back in the UK, and the amount I have to pay back has dropped a lot in the last few months, so for me it is one bright spot in what is for most of us turning into a pretty torrid time...

RoadWarriorFromLP

I tend to agree with you. Where I differ slightly is that my working theory re: the dollar is that it is currently overvalued, due to the current climate of fear has created a flight toward buying dollars (and the yen.) So as things get better across the globe, the ironic result should be a weakening of the dollar as investors calm down and find some motivation to move from the security of US dollars into other sectors.

If this plays out as I expect, that would naturally help the pound and the euro. Since investor sentiment tends to precede the actual recovery, this could occur as soon as sometime toward the end of this year.

If the pound hits $1.25, if you can afford to do it, I'd try to accelerate your debt payments to take advantage of the exchange rate. That could prove to be a good investment.

nettlebed

I'm with Cindy on this one. My mortgage and gee-gee in Blight are now a lot more affordable.

fogga4000

The post office which normally offers pretty good rates is at 1.33 to the pound. FFS

snodog

We just bit the bullet and bought a lot of $$. Between the original phone call for a price and actually deciding how much to buy ( all of 5 minutes), the rate dropped by another half cent. Fortunately, our guy got them to honour the original quote, so we bought at 1.377.

The other company director bought 1 hour before we did - he got 1.386
Maybe doesn't sound like much of a difference, less than a cent, but he bought a million quid's worth

cindyabs

He must have a mortgage in the US.

chartreuse

There's a story in The Telegraph today that says:
I know that there's more to this than I understand, but if they get their way and if the useless tossers in government actually manage to do something, that might be quite helpful for us. If it happens soon enough!

zargof

Frankly, I wouldn't put too much faith in this happening, as any artificial attempts to increase the value of the pound are going to mean the UK's economy suffers as a result of making exports more expensive. I can understand the French and the Germans being miffed though as relatively weak pound means that their economies suffer. So the question is should the Chancellor let the UK economy suffer to help the rest of Europe?

chartreuse

Speaking as an ExPat, damn right he should!

CarrotCruncher

It's pretty grim for us; the children's support payments come in from the UK. Last year it was a rosy $2:£1 this year it's alot worse, and their father just took a mandatory 20% pay cut. At least he still has a job.... Hopefully I can get some on campus work in August to help!

Taffyles

No in a nutshell- the UK should take full advantage for as long as possible

The dollar will tank soon enough, as soon as they get round to doing something about it. Any bets on how low the dollar will go by the end of the year? bearing in mind the amount of money they are printing.