EURO pounds the pound sterling GBP today in a market that never really start for pound sterling. Euro Sterling, EURGBP achieved parity at some point this week before receding back slightly. How long the pullback holds remain to be seen. However, at a time when market players expected the pounds, GBP to track the euro after recent lows, we are seeing further slides and lower-lows. What is the root cause of it?
The last few weeks have seen tremendous surge in the euro across board. The euro-zone economists have done nothing or the least to stimulate her economy. But simply doing nothing, the euro currency beginning to prey on the weaknesses of other currencies – notably the pounds sterling.
As a result, we have been extra-ordinary rise from the November lows to the present 0.955 resistance levels. Here are four things the Government will not tell you:
1. UK Economy on its Knees
The British Economy became a service-oriented society since the Baroness Thatcher years. With focus on the financial sector it meant that highly lucrative industries like manufacturing were allowed to rot away. In the early years of Mr. Brown, when the surge in the pounds was driving many small firms out of business, his aphorism was productivity and prudence. At the moment they are lost on the pages of his dictionary. So when you here the falling pound being good for “export” it’s an old cliché.
2. Huge Borrowing
There has been huge borrowing by the UK government and the public in the last decade. So were the general public. This excessive borrowing has unnerved confidence to external creditors. The UK credit rating was lowered last month and being the biggest borrower in G7 this does not bode well for credibility.
3. Interest rates cuts
Since the recent bank profligacy, we have seen interest rates plummet from 5.0 to 2.0 percent. This makes saving in bank accounts highly difficult for those who use it to generate income. With Britain becoming a service nation, her currency became tied to the interest rates movement. The above cuts within three months means in currency trading terms “.. unfavorable atmosphere.. ” for savings. When this happens traders go on selling frenzy.
4. Consumer
For week we have heard sound-bites and political rhetorics by politicians on the economy. But for the common (wo)man on the street the only concerned is about the effects on their pockets. How it affects grocery shopping and high street purchases. With unemployment at its steepest in 17 years and at highest for 25 years, does anyone need a think-tank to explain why there are no people in shops? Yet the government still believe that by cutting rates would stem the slide.
Your Takeaway
Factors above highlights part of many reasons why the pound sterling have been sliding corrosively in the last few months. For the UK travellers to Euro-zone, it has been a very expensive adventure. The plus side of it has been on goods and products export. Having a weakened pound sterling made a good case for UK Exporter. In addition, the Euro-bangers (those clamouring for the UK to adopt the euro) has a good reason to hacking the wood at will. But there are those who are vehemently against this idea for lack of flexibility and interest rates adjustments etc. However, the UK government is now finding out the cost of lack of economic diversification which is required to maintain continuous growth.
