Pound may suffer as US rates rise above ours

http://business.timesonline.co.uk/article/0,,9556-2103316,00.html

SOMETHING unusual is about to happen in the international money markets that could have a big impact closer to home.

On Tuesday, under its new chairman, Ben Bernanke, America’s Federal Reserve will raise its key interest rate, the so-called Fed Funds rate, from 4.5% to 4.75%.

US interest rates have gone up a long way since 2004, when they stood at just 1%. And Tuesday’s move, say analysts, will not mark the end of the story. Inflation worries in America will push the Fed Funds rate up to 5.5% by mid-year, predicts the investment bank Lehman Brothers.

In Britain, the significance of Tuesday’s move is that it will signal the beginning of an unusual period, one in which US interest rates are higher than those in the UK. It happened very briefly five years ago, but before that you have to go back to the early 1980s for a period in which the US had higher rates for any length of time.

What could be the impact? Analysts at HSBC think it could push the pound, currently $1.75, down towards $1.50.


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Bad news for those in the UK, could be good news for those planning on moving soon.  Personally, I would be ecstatic if the pound moved closer to the dollar.  At least until I get settled over there    And assuming it didn't disrupt the UK economy too badly, thus hampering my ability to find work.  Hmmm, too bad you really can't predict these things.

Hi!

Thanks for this heads up Carrie, I shall now be watching the exhange rate like a hawk and of course be looking into other possible impacts too....

Dennis!! West London & Slough UK!

I watch the exchange rate several times a week. This week the pound is rising against the dollar after hovering around the £1.73 mark for quite a few weeks (fluctuating a bit by a point or two either way). As of COB yesterday it was a £1.78 to the $1.

I watch the exchange rate several times a week. This week the pound is rising against the dollar after hovering around the £1.73 mark for quite a few weeks (fluctuating a bit by a point or two either way). As of COB yesterday it was a £1.78 to the $1.

I know you meant $1.78 to £1.   

Yes thanks Bvamin! 

You know...something didn't feel right when I was typing but it didn't dawn on me at the time!

Keep in mind also, that the $1.78 is the mid market rate for the exchange. Nobody actually gets an exchange at that rate, it is the average between the buy and sell price of the pound vs the dollar. Last I heard, about 2 weeks ago,  the actual exchange was $1.95 to get 1 pound (Hmm, not sure how to type the pound sign...) So that would mean you would get about $1.60 for 1 pound if you were buying $'s

I hope this is true...all I will say is thank God and I hope it lasts!

At the current exchange rate, if you go to M&S and convert £'s to $'s you would get approximately $1.72 for a £1. I have always found that they have the best rate with no commission. Usually a 5p spread.

http://business.timesonline.co.uk/article/0,,9556-2103316,00.html

Bad news for those in the UK, could be good news for those planning on moving soon.  Personally, I would be ecstatic if the pound moved closer to the dollar.  At least until I get settled over there    And assuming it didn't disrupt the UK economy too badly, thus hampering my ability to find work.  Hmmm, too bad you really can't predict these things.

Actually it would be good news for the UK economy and employment.  At present UK exports are being held back big time by the high value of the £.  After an initial adjustment period, the economy would be boosted by a decline in the £'s value.  The only worry would be that it could stimulate inflation but that seems unlikely given that inflationary pressures are very subdued at present.

Keep in mind also, that the $1.78 is the mid market rate for the exchange. Nobody actually gets an exchange at that rate, it is the average between the buy and sell price of the pound vs the dollar. Last I heard, about 2 weeks ago,  the actual exchange was $1.95 to get 1 pound (Hmm, not sure how to type the pound sign...) So that would mean you would get about $1.60 for 1 pound if you were buying $'s

Depends on what you mean by 'nobody actually gets an exchange at that rate' - I have taken cash at an ATM and received that rate or very very close to it - much closer to that than to $1.95 to £1.

This would be a mixed blessing for us; I get paid in dollars but wife gets paid in Sterling.

At the current exchange rate, if you go to M&S and convert £'s to $'s you would get approximately $1.72 for a £1. I have always found that they have the best rate with no commission. Usually a 5p spread.

I second that!  They are a bit better than the Post Office!

Higher rates of inflation tend to make a currency weaker as well as the record budget deficits mentioned.
It was just reported that consumer and producer price indexes were higher than expected which may lead the way to further inflation.
This may hold the dollar down - if you've looked at the $ to £ exchange rate in the last week it's jumped from $1.74 up to $1.78/pound and this was
after the interest rate rise to 4.75%.

Oddly, the Federal Reserve has recently noted that they may stop raising interest rates very soon which goes counter to the statements that rates will rise
to 5.5%.  This seems to go against the pricing index rises and potential for further inflation.  One of the best ways to fight inflation is to raise interest rates.
But, they're the professionals and perhaps they see something that I don't.

It seems like it's been pretty much a no-brainer over the past year and more to keep raising rates but I think the Fed is getting to the point where the decisions are going to be a bit more difficult.

I can see the exchange rate flucuating anywhere between $1.50 - $2/pound depending on whether they go for overkill in the rates and stymie the economy or if they decide not to raise rates anymore and inflation really does kick in.  The X-factor lately seems to be whether the higher energy costs will really start to bleed into the pricing of everyday products.

Anyboyd checked the markets today? The exchange rate SUCKS!  1 pound = $1.89.  When I moved here last August it was 1=1.70. 

Anyboyd checked the markets today? The exchange rate SUCKS!  1 pound = $1.89.  When I moved here last August it was 1=1.70. 

It was 1=1.74 when we exchanged in April.  Hmmph.  Things had better turn around by the end of the summer.