Sterling is moved by many things

When sterling was at 1.15 Euros in 2011 no-one suggested it was weak because we might leave the EU. It is now 1.27 Euros to the pound, a 10% Euro devaluation compared to 2011, yet we read the pound is falling owing to Brexit fears. In January 2012 there were just 118 yen to the £1. Today there are 160, a yen devaluation of 35%. Against the dollar, which has been rising against most world currencies in recent years, sterling has just hit $1.40 again, a level it has reached several times before. The £1 was also weak against the dollar in July 2013 and in April 2015, when its weakness was not ascribed to Brexit fears.

The reasons people sell a given currency and drive its price down from time to time are varied. Currency volatility has been a big feature of world markets so far this year. At the centre of the action has been the weakness of the Chinese yuan and the strengthening of the yen after a long period of weakness from the Japanese currency. There has also been a period of dollar weakness against the yen and Euro, as people revised their expectations of further US interest rate rises downwards. Sterling has been caught in some of the cross winds from these global currency moves.

Recent falls in sterling against the dollar may be related to perceptions that the Bank of England is now going to delay any interest rate rise this side of the Atlantic for many months. They may be related to continuing weak balance of payments figures, and less hot money flowing in from Russia, the Middle East and other commodity producing areas. There have been people out to talk the pound down as they think it had reached uncompetitive levels. It is difficult to see why the possibility that Brexit might win the referendum should have a great lasting negative impact on our currency. After all, the first round effect is to improve the balance of payments by on fifth as we cancel the payments we have to make to the rest of the EU which we do not get back.

It is difficult to know whether the 2011 rate against the Euro meant the pound was too cheap or the current rate if still too dear. Markets change their minds on these matters, and often overshoot when correcting what they see as an anomaly. The pound did not suddenly fall the first time someone published a poll showing Brexit was likely after all.
Yesterday the Bank of England testimony to Parliament mattered more. Hints that interest rates could be cut again and more money could be created showed the Bank doesn’t mind more currency depreciation. The Bank was far more worried about low inflation and weaker growth than about devaluation.

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87 Comments

  1. The Active Citizen
    Posted February 24, 2016 at 5:24 am | Permalink

    Excellent article JR. These things need saying and it has irritated me intensely that the usually ignorant TV presenters have shown their ignorance to a breathtaking degree when attempting to discuss the supposed crash in sterling due to the ‘Boris factor’. I trade in sterling, dollars and euros, and life has been nothing if not interesting in the last few years, with exchange rates fluctuating a great deal.

    “After all, the first round effect [of Brexit] is to improve the balance of payments by one fifth as we cancel the payments we have to make to the rest of the EU which we do not get back.”

    JR, are you aware that this has never been mentioned in the mainstream media, despite you pointing it out before? It’s a nice, positive point, and should be known by all spokespeople for the various Leave organisations, and particularly by Leave MPs.

    On that subject, are you able to reassure us that there is some form of centralised and coordinated communication system for all Leave MPs and important spokespeople to access facts and new articles? Or are they all reliant on what they happen to read in the papers or see on TV?

    reply I have stared these points with those at Vote Leave who brief spokesmen

    • Mike Stallard
      Posted February 24, 2016 at 7:22 am | Permalink

      I am so glad you are in touch with Vote Leave.
      We need every man to the (same?) pumps at the moment.

    • oldtimer
      Posted February 24, 2016 at 8:02 am | Permalink

      Agreed. Perhaps the alarmist comments are intended to reinforce Mr Cameron’s assertion that his deal offers “security” and “certainty” versus the uncertainty of the consequences of Brexit.

      Nothing is certain in fx markets. Nothing is certain in the EZ, which must be among the unstable currency zones in the world. The only certainty we can expect from the EU is power of the European court over our laws and the freedom of movement for millions of EU citizens to enter the UK without let or hindrance. There is neither “security” nor “safety” for the UK within the EU.

    • Narrow shoulders
      Posted February 24, 2016 at 8:03 am | Permalink

      “All current grant payments by the EU to recipients in the UK can easily be continued as after all it is just a return of money we are sending to the EU @ £55 million a day. Even after payment of all these grants we will still be £10 billion better off annually”.

      This is the line that should be repeated Ad nauseum by anyone questioned. It should also be reiterated as a response politico style to questions that are not asked.

  2. Excalibur
    Posted February 24, 2016 at 5:49 am | Permalink

    Another incisive, irrefutable post, JR. Having spent decades savaging our currency, the government, and others, now conclude that Brexit will be the sole arbiter of its worth. None of the main stream media, to my knowledge, mentioned that the Euro also fell. We will be subjected to these endless lies and half truths until June 24th when we can begin the task of making this nation great again.

  3. JJE
    Posted February 24, 2016 at 5:54 am | Permalink

    We know that markets dislike uncertainty. It’s not possible to correctly price in advance an unknown binary outcome. I would say that Sterling has lost its safe haven premium. As you say that’s not necessarily a bad thing at all.
    In our Alice in Wonderland central banking world, competing to drive down the value of their currencies is what they do.
    Keep borrowing everyone, the helicopters will be along to drop off some money soon.

  4. Antisthenes
    Posted February 24, 2016 at 6:43 am | Permalink

    I see the hand of some clever people profiting from brexit as it is bound to be destabilising like many other events often are and exacerbating the situation. Nothing to see there just move along despite the fact that scaremongering remain inners tell us differently. Regardless of that UK exports have been suffering because the pound is too strong in this now very weak global market. So an adjustment was always on the cards.

    The euro is weak against many currencies to because the euro-zone is in such an economic mess. So a much more scary scenario than brexit so inners are being total hypocrites. It is ok for the euro to be weak for pretty much the same reason as the pound is now floating down for. It is economic necessity.

    Frequently in the past prior to a general election and it looked likely that Labour may win it the bond markets reacted badly to that fact. The fact was pointed out but it did not stop people voting for Labour and the sky did not fall in if they won. It did cause a wobbly period for a while after but things picked up and went back to normal eventually. So it will be if vote leave wins.

    Leaving the EU will not be all plain sailing and problems will arise but they will be overcome. Remaining in the EU will cause by far many more problems that will not be easily overcome if indeed they ever are.

    • Lifelogic
      Posted February 24, 2016 at 7:20 am | Permalink

      Why does Cameron keep saying his agreement is legally binding? It clearly is not and he must surely know it is not. Furthermore it is valueless even if it were binding.

      It provided no control of open door migration just a tiny reduction in some benefits for a short period (again controlled by the EU) and judged by the EU courts. It returns no powers to Westminster at all.

      This might deter a handful of migrants but Osborne’s absurd attempts to raise the minimum wage so much will shortly provide yet another new draw for them.

      Gove is quite right. The agreement is trivial, virtually worthless, not even finalised and clearly not binding.

      • Antisthenes
        Posted February 24, 2016 at 1:27 pm | Permalink

        Indeed the deal is not a deal until it is written into a treaty and there is no certainty that a new treaty will ever be drafted. David Cameron was counting on that the British option but really just associate membership that was once touted but now appears to be unlikely. So by any measure it is not binding because attitudes and circumstances can change at any time and probably will. Excuses will be offered and nothing else. The veto and/or reneging will be the order of the day. It has happened so many times before.

        Despite this and all the other deceit and nonsense emanating from the remain camp I do believe they will win the day. However all may not be lost as Italy may come to the rescue if the timing is right and(some of? ed) their banks (get into trouble? ed) up before June 23. For (that ed) is where they are heading they are in a terrible mess. The fall out would not only ensure the UK leaves it is probable that it will destroy the EU anyway.

        • lifelogic
          Posted February 24, 2016 at 6:57 pm | Permalink

          I do not think the remain camp will win. They simply have no valid arguments to make, the people can see this. The voters are not that stupid. They want democracy back and to want control our own borders to be returned to democratic control from Westminster on a merit system.

          If they do win it will be because of the absurd bias of the appalling BBC and the power of the government’s propaganda machine.

          Anyway even the remains should vote out in the first referendum and wait for a better deal. As should the Scots who want to leave the union.

      • Lifelogic
        Posted February 24, 2016 at 6:32 pm | Permalink

        Still more moves from the remain Tories as they deposit the “agreement” with the United Nations in a desperate attempt to pretend it is binding. The remain side really are getting rather desperate.

        But why is Cameron telling to Corbyn to smarten up and sing the national anthem? If Cameron has his way there will be no nation to sing for.

        What sort of nation cannot even decided on child benefits, who may live there or even the vat levels on sanitary products.

        Perhaps he meant the Ode to Joy, which has been stolen to promote this wretched, anti-democratic union.

        • Mercia
          Posted February 27, 2016 at 12:37 am | Permalink

          What sort of nation cannot even decided on child benefits, who may live there or even the vat levels on sanitary products.

          >
          I actually thought for a short time that Cameron was doing this on purpose and making it clear how pathetic and humiliated we have become because he was secretly hoping we would vote “out”. But he is back to his propaganda tricks and deceitful use of language in defence of “Europe”, so I was wrong.

  5. Roy Grainger
    Posted February 24, 2016 at 6:55 am | Permalink

    Exactly. Scare stories this week in the Guardian and from prominent EU politicians that even the threat of Brexit was causing sterling to fall all failed to explain why that was a bad thing, it is good for exporters anyway. Currently sterling appears overvalued and this is in part at least due to the woeful economic underperformance of the Eurozone and chronic weakness of the Euro.

    On the broader campaign, I am perplexed as to why Mr Cameron is behaving as if it is a close vote in the House of Commons, twisting the arms of the likes of Sajid Javid so they declare for Remain “with no enthusiasm” rather than back Leave is going to have no effect whatsoever on the outcome so I don’t see why he is building up so much ill-will and resentment by his bullying ways.

    • Lifelogic
      Posted February 24, 2016 at 7:22 am | Permalink

      It is good for me for it to fall, as all my borrowing are in sterling and many of my assets are not.

    • Lifelogic
      Posted February 24, 2016 at 7:27 am | Permalink

      Also if we are to export we need to be competitive. Given all the red tape, expensive energy, the bloated & inept state sector and all the other nonsense that government hampers industry with, then perhaps devaluation and thus lower wages is the only way to compete?

      Perhaps post Brexit/Cameon & Osborne we might get a more sensible approach? I hope so.

    • Mercia
      Posted February 24, 2016 at 9:40 am | Permalink

      Exactly. Scare stories this week in the Guardian and from prominent EU politicians that even the threat of Brexit was causing sterling to fall all failed to explain why that was a bad thing

      >
      Yes, but it was being reported as second biggest story of the day on the BBC and pro EU people who know nothing about how FOREX markets work say things like “this is proof leaving the EU would be bad for us”. When it is only proof that rumours and scare stories do effect FOREX markets.

      Look at the chap who posted on this blog a few days ago, he said the traders were spooked by some text which they wrongly thought implied Cameron had inside info more EU bailouts were coming.

    • Mercia
      Posted February 24, 2016 at 11:48 am | Permalink

      I don’t see why he is building up so much ill-will and resentment by his bullying ways.

      >
      He is an insurgent who has hijacked the Conservative Party. So is Theresa May. For how much longer will real Conservatives put up with it?

      • Tom William
        Posted February 24, 2016 at 12:52 pm | Permalink

        Remember who invented the expression “the nasty party” while chairman of that party. The point could have been made less dramatically, but then with less self publicity.

        • Mercia
          Posted February 24, 2016 at 7:55 pm | Permalink

          Remember who invented the expression “the nasty party”

          >
          I always thought she was talking about herself.
          Yes that stuck for years and the BBC repeated it endlessly. I do not know the context in which it was said, but I interpreted it as meaning she did not understand what a true Conservative is.

          • Mercia
            Posted February 26, 2016 at 8:05 am | Permalink

            John, can something be done to help Pakistani Christians? They are being horribly persecuted, murdered and are fleeing to Thailand but are then held in grim detention centres. These are really good people, etc ed. These are Christians and they behave like Christians. Yet they do not even attempt to claim asylum here. Why is that?

        • Lifelogic
          Posted February 24, 2016 at 8:00 pm | Permalink

          How on earth does Mrs May square her immigration speech at the conference with her current “remain” position? Perhaps she should spend less time choosing shoes and a bit more time thinking occasionally?

          Just how confused or deluded can one be?

          • Mercia
            Posted February 25, 2016 at 9:06 am | Permalink

            How on earth does Mrs May square her immigration speech at the conference with her current “remain” position?

            >
            This is the same Mrs May who preaching Islam is a religion of peace at the same conference? Was that not all the proof you needed she just says whatever is politically expedient at the time (etc ed)?

  6. Lifelogic
    Posted February 24, 2016 at 6:58 am | Permalink

    Indeed the level of the currency is to a large degree in the hands of the government and the chancellor. Even more so post BREXIT

    If you print and devalue the currency, run low interest rates, have expensive green crap energy, over tax, over regulate, reduce productivity, have a government that wastes money hand over fist and delivers mainly dross by way of services then you are likely to have a weak currency.

    Post the exit the government will have more control over these things. If it wants a stronger currency it should encourage the rich, hardworking and successful to live in the UK. It should have selective quality immigration only.

    The opposite of Osborne’s current tax until the pips squeak agenda, open door immigration, green crap subsidies, pension/landlord & tenant robbing and his regulate everything to death approach.

    • Lifelogic
      Posted February 24, 2016 at 8:04 am | Permalink

      All this, while still running a huge public sector deficit. One that does not even look likely to meet Osborne’s own targets (very wasteful and profligate targets too).

    • Lifelogic
      Posted February 24, 2016 at 11:40 am | Permalink

      Now yet another daft proposal being considered by the Government. It would require all small businesses and the self employed to move from annual tax returns to mandatory quarterly Digital Tax Reporting by 2020.

      Should do wonders to harm productivity and distract (and put off) the productive from producing efficiently.

      Is there no end to ability of the government to shoot the economy in the foot, damage the economy and kill the animal off which the state sector feeds?

  7. bluedog
    Posted February 24, 2016 at 7:15 am | Permalink

    Tell them a floating exchange rate is like a giant shock absorber, Dr JR. It automatically irons out day to day fluctuations in supply and demand. Another ERM crisis is simply not on the cards, although the Remainians are almost certain to suggest it is. It needs to be clearly pointed out that the Euro had been a disaster and that even our Chancellor has no plans to recommend entry. On the subject of George, where is he? Uncommonly quiet it seems.

  8. Posted February 24, 2016 at 7:18 am | Permalink

    A lower pound is not necessarily a bad thing.

    It is a really a case of choosing 2 out the following 3

    1) A High Pound
    2) A Healthy economy
    3) Low Govt and Trade Deficits

    • Richard1
      Posted February 24, 2016 at 6:47 pm | Permalink

      Switzerland has all 3

      • Posted February 27, 2016 at 1:50 pm | Permalink

        No it doesn’t.

        Switzerland for a number of years had a policy of pegging the Swiss Franc to the euro at an artificially low rate. The peg has formally been removed but the Swiss central bank regularly intervenes to keep the currency from appreciating too much.

        A country can only have an export surplus if it keeps its currency artificially low. Switzerland had a CHF3.51 billion surplus in January of 2016 .

        Where do those Swiss Francs come from to support that surplus? They can only come from the Swiss National Bank (The Swiss Central Bank)

  9. eeyore
    Posted February 24, 2016 at 7:21 am | Permalink

    Already we are hearing from the Remain camp that those who wish to Leave are devoid of arguments and have not made their case. Only someone wilfully ignorant of Mr Redwood’s remarkable Brexit posts over the few weeks could say that.

    Now the campaigns are launched, can Mr Redwood assure us that plans are in hand to publish them in pamphlet form as soon as possible, and to circulate them as widely and cheaply as funds allow?

    If cost is a problem, I for one would like to contribute. Perhaps other commentators to this blog feel the same.

  10. The PrangWizard
    Posted February 24, 2016 at 7:29 am | Permalink

    More much lauded ‘inward investment’ seems to be coming our way with the acquisition of 54% the LSE by Deutsche Borse.

    How long will it remain 54%, but in any event it is a controlling interest. Something tells me this will not be good for the UK; will we see a gradual bleeding away of business to Germany? More decline because we can’t or don’t wish to stop it?

    Just how much more of our land, businesses and property is left before it is no longer our nation, because foreign interests pull the strings? Not much, methinks. Much like the EU which controls us politically and legally.

    In more ways than one we need to leave the EU.

  11. Jerry
    Posted February 24, 2016 at 7:56 am | Permalink

    “When sterling was at 1.15 Euros in 2011 no-one suggested it was weak because we might leave the EU. [../etc/..]”

    True… But it was most likely due to current events or worries at that time, whilst many things (such as fears of long[er] term low interests rates) have been around for weeks, months or years, as has the possibility of a referendum vote but only ion the last week as the terms of that vote and the date actually been a known fact So to suggest that the current volatility has nothing to do with a Brexit fear is wishful thinking and ill-disguised spin-doctoring – even more trying to link something the BoE said yesterday (Tuesday) to what happened on the currency markets on Monday. Something happened, something changed, between market close on Friday last and markets open on Monday just gone, how ever much the Brexit side wish it wasn’t that that something were the events in Downing street and Westminster over the weekend, in other words confirmation of the terms and the date of the referenda.

    At risk of being censored again, I still have comments in moderation 72 hours after posting, I believe that a Brexit is there for the loosing, due to assumptions, arrogance, easily provable half-truths and spin from the Brexit side, not the MSM or those wanting to remain in.

    Reply Yes, something did happen on Friday – higher core CPI figures in USA and worries of higher US rates again.

  12. JoeSoap
    Posted February 24, 2016 at 8:00 am | Permalink

    Your case is being systematically linked and spun against e.g..

    What DID NOT appear on BBC News:

    “DEATH AND INJURY AT DIDCOT POWER STATION RESULT FROM AN EU RULING”

    Didcot A opted out of the Large Combustion Plant Directive which meant it was only be allowed to run for up to 20,000 hours after 1 January 2008 and must close by 31 December 2015 at the latest. The decision was made not to install Flue Gas Desulphurisation equipment which would have allowed continued generation. Instead the plant was due for demolition, which led to death an injury.

    Yet any item which might contain a scintilla of bad news which can be linked to the Leave case is linked. That is where we are.

  13. Ian Wragg
    Posted February 24, 2016 at 8:02 am | Permalink

    Today is the coldest day of the year.
    I’m sure the BBC will ascribe this to Brexit fears.
    Remember all countries not members of the EU slaughter their first born

    Cameron seems intents on alienating all the government with his lies and bullying.
    Doesn’t bode well for the next election.

    • bigneil
      Posted February 24, 2016 at 12:19 pm | Permalink

      I think you made that up – my brother was first born, we weren’t in the EU and he wasn’t slaughtered at birth (thanks for helping the poor out (me) with giving me your old phone – hell of a lot easier than the previous one). See you in March for a cuppa and a biscuit.

  14. JoeSoap
    Posted February 24, 2016 at 8:07 am | Permalink

    It is difficult to know what to suggest here, because I feel you are going to be continually defending your case against stories which are being raised against you over the next 3 months.

    We are beginning to see why Cameron wanted nothing to do with major reform of the BBC. Getting them to pay for licence payers over 75 doesn’t really cut it. The ground has been layed-we see Cameron, not Farage, Gove or yourself at O2 presumably because they have some Tory -luvvy at the helm.

    There does need to be a consistently positive case which needs bringing, linked to the economy.

  15. Anonymous
    Posted February 24, 2016 at 8:22 am | Permalink

    They’re using it (the fall in the pound) as evidence that leaving the EU would be a leap in the dark.

    The Union is a judicial dictatorship.

    The Union is one which aims at ever closer political union.

    A referendum question framed thus: “Do you wish to remain in the EU ?” is weighted heavily in favour of remain.

    It suggests leaving the status quo.

    If the question were framed honestly and truthfuly: “Do you wish to be ruled by Britain or by the EU ?” (and that is what this is all about) then who would vote to remain ???

    “We can direct the judicial dictatorship by means of treaties and votes.”

    Oh really.

    Under QMV Malta gets a weighting of 3 votes for 425,000 people. Britain a mere 29 votes for 65,000,000 people.

    A Maltese citizen has nearly sixteen times the voting power of the UK citizen – particularly galling considering our economic and military contributions to the EU. No wonder we have such little influence over EU decisions.

    It beggars belief that anyone wishes to remain under present arrangements.

  16. Richard1
    Posted February 24, 2016 at 8:23 am | Permalink

    I think it shows that is essential that post Brexit we have a government and monetary authorities who are rigorously committed to sound money, balanced budgets, competitive taxes and creation of a more attractive investment and business environment than exists in neighbouring (in EU) countries. Otherwise we may be subject to outflows and lack of foreign investment.

  17. formula57
    Posted February 24, 2016 at 8:37 am | Permalink

    Sterling weakness may have been caused also by bitter disappointment that the £7 billion (some half of the figure we would save from ceasing contributions to the Evil Empire) that HM Treasury sought to cut from the Scottish government’s budget has been preserved by the settlement just announced.

    If it were UK PLC and the Board, faced with a management buy-out proposal from an ailing subsidiary, had nonetheless thwarted a sale, the sorry present state of that cash-draining loss maker would see shareholders revolt. Mr Cameron the Vow maker is fortunate not to be in business. Yet the prospects for the UK shorn of Scotland might well be seen as even more buoyant than the UK freed from the Evil Empire. How bitter it will be if Scottish “Stay” votes keep us shackled! That more than the normal currency fluctations should be undermining the value of Sterling, I would think.

  18. Pete
    Posted February 24, 2016 at 8:38 am | Permalink

    The BOE is obviously worried about not enough inflation. Without high inflation the wheels come off the money go round between government and banks. The mega rich stop getting richer and the theft of working people’s wealth stops. Next thing you know people will start realising just how much they are robbed by financial and political elites.
    All the staged political wrangling and massaged statistics are there to obscure the reality. The only way Britain will leave the EU is if the elites allow it. How many times has the EU ignored referendum results if they don’t fit their agenda? Just see how Cameron and his bought and paid for cronies are allowing government resources to help the in campaign but not the out. The stage managed political and business warnings of dire consequences if we leave and unspecified rewards for remaining. In the end the result depends on whether the 0.001% decide they will make more money from us staying or leaving.

  19. Bob
    Posted February 24, 2016 at 9:09 am | Permalink

    I see that ministers supporting Brexit have have been barred from using any government material or resources to campaign for Out. The civil service however will be used to support the Remain campaign.

    Looks like a re-run of 1975, the Establishment vs the People.

    • stred
      Posted February 24, 2016 at 3:44 pm | Permalink

      I saw the end of PM’s QT today in which Owen Patterson asked at the end whether the civil service was being used to frustrate ministers who supported the Leave side. Cameron’s anwer was contempuous and arrogant. The government supports Stay and will use the Civil Service. Most of the Whitehall staff no doubt support the EU too. This appears to be against the rules for referenda and in any case shows total disregard of the principles of democracy and fairness.

      To hear that ministers supporting out will have files and information witheld by functionaries is staggering. How are they going to do their jobs properly? Could Michael Gove do anything to stop the £20k grab on probate fees for instance. While Attorney Generals are wheeled out to lie about the legality of the deal from Brussels, a Swedish MEP has pointed out that the Council had no right to agree this deal anyway and the politicians who made it may not be re-elected by the time any treaty is likely.

      Cameron is not acting as a Prime Minister and shows his total unsuitability to lead a nation with a proud past. He is a disgrace. MPs should remove him now before he does any more damage. Mr Heywood is also acting in a partisan way and ignoring civil service codes. He should be sacked.

      • Bob
        Posted February 24, 2016 at 5:08 pm | Permalink

        @Stred

        “He should be sacked.”

        It’s going to be near impossible with a virtual Lib/Lab/Con/SNP coalition.

      • stred
        Posted February 24, 2016 at 6:48 pm | Permalink

        I have been out for a walk in the lovely country park in E.London made from the airfield where our pilots flew biplanes to shoot down Zeppelins bombing us in WW1, then Spitfires and Hurricanes in WW2. I parked in the area made for preparing the planes and walked past the concrete pillboxes. Then, I thought how our present prime minister had put all the resources of our country to ensure that his sham negotiations fooled the population into giving away our sovereignty to a European State dominated by Germany, where we can be outvoted and subsumed, made to pay for their failed policies, extradited to every part of it on the say so of foreign police and fined billions if we fail to act according to their directives. Churchill would turn in his grave if he could see Cameron abusing his biographer and lying to the Commons. Well done for the book Boris and we will forgive you for the Cyclesuperhighway.

        Reply Modern Germany is a different state from the Germany of 1939, but I do agree that it is better we have control of our own affairs.

  20. Bert Young
    Posted February 24, 2016 at 9:14 am | Permalink

    There is no run on the pound and the current exchange rates are , as John suggests , normal . Mark Carney has more to do with how the markets react than anything else . Of course there is some speculation following Cameron’s announcement and some traders have reacted . Products and services are now more attractive to overseas buyers so , in some ways ,the pricing down of the £ is not a bad thing .

    A key import is oil and , at the moment oil producers are competing with each other so keeping the price per barrel low – good news for us . Ridding ourselves of the tentacles of the EU would also reduce the cost of energy supplies – something we all would again benefit from . For the next 3 months there will be some volatility over how the £ is traded in the markets ; these values will only be marginally influenced by politics rather than economics . One thing that also has to be considered is the role of the ECB propping up the EU countries state of health ; generally it is in a mess and will keep the Euro on the low side . The £ will be in comparison steady in value .

  21. agricola
    Posted February 24, 2016 at 9:15 am | Permalink

    I suspect that the exchange rate is being eased down in anticipation that it will rise when it becomes clearer that Brexit is a reality. Profits cannot be made in the money markets if the exchange rate is stable.

    By making forward contracts reflecting the current price, there are big profits to be made when it increases in value.
    £1000.00 at Eu 1.27 = Eu 1270.
    Sold forward at say Eu 1.30, you owe the customer Eu 1300
    The gamble is that on Brexit the exchange rate will be Eu 1.40, generating Eu 1400 and a profit of Eu 100.
    Multiply it be the billions that are changed each day and the nett profit is considerable.

    I do not buy into exchange rates being free as a bird and not free of man’s greed and manipulation. Not when vast profits and bonuses are to be made. The process of Brexit creates the uncertainty, makes it easier to disguise and appear natural. Put another way, a business opportunity.

    • Denis Cooper
      Posted February 24, 2016 at 2:47 pm | Permalink

      I remember the “convergence play” in the years before the euro was launched.

      From 1996:

      http://www.independent.co.uk/news/business/comment-convergence-play-leaves-britain-out-in-the-cold-1352004.html

      “Peripheral bond markets are rising strongly in anticipation of monetary union. If markets believe a country will join EMU, it seems reasonable to align their long-term bond yields with those of the lowest denominator – Germany – since after EMU their inflation and currency rates should be the same. In markets, this is known as “the convergence play”. The dangers for those who adopt this as an investment strategy are only too apparent.”

  22. Mercia
    Posted February 24, 2016 at 9:18 am | Permalink

    Sterling was on a normal downward trend from May 2014 after hitting a 4 year high and after the IMF saying it was overpriced, plus the dollar was strong. The reason why it is falling again now (is because of the irresponsible words and the scare strategy used by the IN campaign).

  23. Iain Moore
    Posted February 24, 2016 at 9:21 am | Permalink

    Odd that they compare the Brexit effect against the US dollar rather than the Euro. May be because sterling is still in a long term up tread against he Euro. The short term falls against the Euro (10%) would cover any possible tariff cost the EU might levy against us if we left the EU.

    On another issue , I note the BBC is going to give Scotland a dedicate news program, after all your efforts to try and get the BBC to give England some representation got nowhere. It seems all the Scots have to do to get the British establishment to run after them is click their fingers, and the British establishment come running baring gifts, as we heard yesterday when Osborne capitulated on the Scottish funding settlement, where it would seem they get to keep their income tax revenue, without suffering any cuts in the Barnett formula, if I am correct, Scotland, from a privileged funding position is going to get a boost in funding, while English councils gets cuts and the English higher local taxes.

    • fedupsoutherner
      Posted February 24, 2016 at 2:55 pm | Permalink

      Most of us in Scotland will be turning over as we don’ t want to hear SNP propaganda all the time. Why are they the only part of the UK to always get what they want? All this achieves is more power to the SNP who look great in the public eye. Those of us who voted against independence can see that Westminster is playing right into their hands. Cameron/Osborne aren’t strong enough to negotiate with anyone let alone lead us in Brexit when the time comes.

  24. Mercia
    Posted February 24, 2016 at 9:27 am | Permalink

    Sterling was on a normal downward trend from May 2014 after hitting a 4 year high

    >
    Against the dollar.

  25. Mercia
    Posted February 24, 2016 at 9:47 am | Permalink

    Recent falls in sterling against the dollar may be related to perceptions that the Bank of England is now going to delay any interest rate rise this side of the Atlantic for many months. They may be related to continuing weak balance of payments figures, and less hot money flowing in from Russia

    >
    Johns the expert on Fundamentals, I trust and read intraday Price Action.

  26. Paul H
    Posted February 24, 2016 at 9:56 am | Permalink

    Slightly off-topic, but on the Today program this morning Martin Schulz said that it was a refreshing change to have a Conservative PM fighting for Europe.

    I will not bait our good host by disputing the application of the adjective “Conservative” to the PM, but it was a very telling comment. The last time I checked, we pay Cameron a good salary, with lots of perks, secure pension, etc., to fight for the UK.

  27. Mercia
    Posted February 24, 2016 at 9:58 am | Permalink

    There have been people out to talk the pound down

    >
    Deutsche Bank, Morgan Stanley, Goldman Sachs
    Deutsche Bank said last year that the pound was one of the most overvalued currencies.

  28. Paul H
    Posted February 24, 2016 at 9:59 am | Permalink

    Completely off topic, but do you realise that the “Archbishop Cranmer” link from your website is out of date as it links to a discontinued site? It is not a major problem as there is a link forward to the current site, but the old one may not be around forever.

    • Mercia
      Posted February 24, 2016 at 12:16 pm | Permalink

      Completely off topic, but do you realise that the “Archbishop Cranmer” link from your website is out of date

      >
      He writes some great articles.

  29. Tad Davison
    Posted February 24, 2016 at 10:02 am | Permalink

    I am surprised that even bad weather isn’t attributed to the possibility of Brexit, such are the depths the ‘pro’ lobby will go to scare people into staying.

    It continues to trouble me that so much of it goes on. We on the ‘out’ side need to concentrate on and highlight the positives of leaving the EU, whilst exposing the dodgy myths. As for leaving being a leap into the dark, another scare story, we in the UK didn’t seem to do so badly for thousands of years before the EU was even thought of, so I am sure we could do well.

    Some have said that if the UK left the EU, the EU itself might ultimately founder. From my perspective, it could well do that anyway, so it is best we don’t nail our colours to the mast of a sinking ship, in case we get to pay for it. We’ve spent enough on this failing project already and its demise wouldn’t trouble me in the slightest. Far better to have our laws made by our own parliament that we can vote out if they get it wrong, than a foreign political construct that we can’t vote out no matter what mistakes they make – and there have been many!

    Tad Davison

    Cambridge

  30. stred
    Posted February 24, 2016 at 10:04 am | Permalink

    The value of currencies is determined by demand. The value of the Euro has fallen because of the policies of the EU. Now that the UK has to decide, the wealthy foreigners who decided to invest here have to forecast and move their wealth. It looks currently as though, because of the skewing of the referendum by Irish and foreign votes, the UK will stay. On top of this, the Treasury has decided to tax anything vulnerable, especially in property and IHT and now transaction taxes. The idea that wealthy foreigners or natives had, that the UK is a better place to be, is evaporating. They realise that, under Cameron and Osborne, the UK will soon be as badly managed as the rest of the EU. The value of the £ is likely to slip back to the value against the Euro before the boom started. ie almost 1 to 1.

  31. turboterrier
    Posted February 24, 2016 at 10:04 am | Permalink

    Excellent John. Every point covered as usual.

    With all the emotions flying about at the moment if BoJo got a corn on his big toe the leave group would get the blame if the value of the pound fell.

    Like shares the pound goes up and down.

    The media has a lot to do with how they report it. When will they ever grow up and put the country first?

  32. stred
    Posted February 24, 2016 at 10:06 am | Permalink

    I should have added- because of the ignorance of the population and the propaganda of the MSM and big business, the UK will stay.

  33. The Active Citizen
    Posted February 24, 2016 at 10:15 am | Permalink

    HSBC has just issued a report predicting economic doom if we leave the EU.

    Putting aside their predictions in this report, the important question is how this kind of thing is going to be parried. It simply isn’t enough for a Leave campaign spokesman to dismiss it in a few sentences – this is what we’ve been getting each day so far.

    This needs a more professional and credible approach – to this and to all future claims of this type. We can’t let this kind of thing gain credence with the electorate and it needs to be hit hard and fast.

    Here’s one suggestion. An economic triumvirate of you, Lord Lawson, and Pritti Patel. You give a press conference, answering the points and also taking the opportunity to go on the attack.

    Lord Lawson represents age and experience, you represent experience and credibility from someone who could easily be Chancellor (and you have the intellect to answer anything), and Pritti Patel balances things with relative youth and her own experience as the daughter of Asian shop owners, understanding the realities of small business.

    I bet the public would listen.

  34. agricola
    Posted February 24, 2016 at 11:13 am | Permalink

    If the report is true that Sir Jeremy Haywood has banned all cooperation between civil servants and the Brexit campaign, then can he not be issued with an injunction to put an end to such biased action. The theory always was that civil servants were just that, servants. That to act so blatantly outside their remit crosses the line into partisan politics. It needs to be stamped on. It is even worse than a public body such as the BBC acting in a totally partisan way while taking the public’s shilling. They should be made aware of their future career prospects.

    • Lifelogic
      Posted February 24, 2016 at 12:32 pm | Permalink

      Indeed, I certainly never expected Cameron to deliver a fair referendum. It will get very nasty indeed I suspect.

    • Denis Cooper
      Posted February 24, 2016 at 2:57 pm | Permalink

      Sir Jeremy is a civil servant and ultimately he has to do as his ministerial master demands, even if reluctantly, dragging his feet, and guess who is by convention the Minister for the Civil Service?

      https://en.wikipedia.org/wiki/Minister_for_the_Civil_Service

      • stred
        Posted February 24, 2016 at 7:03 pm | Permalink

        There does not seem to be much dragging of feet. More like we are all in it together.Defend the EU to the last pen pusher.

        Cameron knows he has a majority of clone MPs and socialist internationalists to back him. The only way to get rid of him is for his despised ‘grass roots’ to summon the clones and tell them what their prospects are if they hope to make £70k + for rubber stamping EU directives in 4 years time. Get a majority to tell him to resign or split the Party. And don’t put Osborne or May or any other EU agent in his place.

  35. Stuart Saint
    Posted February 24, 2016 at 11:24 am | Permalink

    Leave must continue to develop and expand a positive economic case for a future outside the EU along with constantly emphasising that In is not the safe option

  36. ian wragg
    Posted February 24, 2016 at 11:41 am | Permalink

    Off Topic. Today around here is the coldest day of the winter so far.
    Wind at this time is generating 0.36 GW producing 0.88% of demand. And still you continue to build and subsidise these monstrosities.
    I see on ConHome a Tory Minister is advocating more biomass generation. What happens when America refuses to chop down any more trees.
    Biomass doesn’t save one ounce of CO2 which I thought was the name of the game, in fact it increases CO2 emissions.

    • Lifelogic
      Posted February 24, 2016 at 11:59 am | Permalink

      Total Insanity as every sensible engineer and scientist knows full well.

      • hefner
        Posted February 24, 2016 at 5:53 pm | Permalink

        In which case you are not anymore a sensible engineer and scientist.

        Electricity produced from biomass returns to the atmosphere the CO2 that has been absorbed when the biomass has been growing.
        Biomass is not a fossil fuel, which is releasing CO2 “absorbed” thousands/millions of years ago.

        • stred
          Posted February 26, 2016 at 10:05 am | Permalink

          Unfortunately, as shown by the calculator produced by Prof McKay at DECC, burning American trees does not save much if any CO2, which is why Sir Ed Davey said “shit” when Prof MacKay told him. (R4 interview on Saving the Earth)

          The trees are felled and pelleted by machine, dried by heating using carbon fuel, transported by truck and rail, then by ship, unloaded this side of the Atlantic by machine, transported by rail and piled by machine before being burned in a converted power station, which needs much more pellets than coal because it has less calorific value. Wood also contains impurities which produce toxic emissions. One biomass station near London was closed and the other one caught fire and was then closed. Even Greenpeace knows it is daft. Eventually ministers and commissioners may come to face the fact that they have and continue to spend a fortune for no purpose other than flattening scenic deciduous forests in the US.

          • stred
            Posted February 26, 2016 at 10:06 am | Permalink

            Forgot to mention the release of carbon dioxide from disturbed soils.

    • fedupsoutherner
      Posted February 24, 2016 at 2:58 pm | Permalink

      Ian, we’ve all known that reducing CO2 has nothing to do with our energy policy. It’s making money that’s the aim. Yet another area that the EU has managed to manipulate to the detriment of the UK.

  37. ian
    Posted February 24, 2016 at 11:51 am | Permalink

    Is it not the case that wet&mad has been building up the debt and taxes to keep the currency down for export which have not come and now risk a bail-in of deposits in 2019 to 2023 which you have supported, why do they want a weak currency to try to get inflation up when most of your food, oil and goods are imported, would that not be bad for most people even if it good for the government books and company earnings.
    I see that aston martin are creating 4000 jobs but I do not see food bank closing and the tax take is all so going down, am I missing something hear.
    How is it that many rich people are bring created but at the same time poor people are going up in leaps and bounds.
    Is it not so that there are more poor now than in the late eighties and less home owners that were born in your country, how do you a count for this.

    Reply The tax take on the rich is going up and many more people are getting jobs so they have more money to spend.

    • Lifelogic
      Posted February 24, 2016 at 12:30 pm | Permalink

      The tax on the rich has gone up hugely and this is doing huge damage to growth, incentives and the economy. Osborne seems set to continue with this mugging. He just seems to enjoy pissing others money down the drain. Hopefully he will go after the brexit vote. Yet another advantage of voting to leave.

      The gap between the rich and poor is actually declining worldwide not increasing at all.

  38. Javelin
    Posted February 24, 2016 at 11:55 am | Permalink

    I work on the FX Floor of a large investment bank and can tell you that the interest rate fall was driven by news on Friday’s of upbeat U.S. inflation data that continued to lend broad support to the greenback. This would increase the chance of interest rate rises in the US.

    Clearly people who put the story about the Brexit know nothing about interest rates which are very objectively measured using models that do not take Boris into account.

    Fox business news said “Core consumer prices – those that exclude the volatile food and energy categories — rose more than expected in January, perhaps supporting the Federal Reserve’s longstanding prediction that inflation will gradually rise toward the central bank’s 2% target.”

  39. ian
    Posted February 24, 2016 at 11:59 am | Permalink

    and also is it not the case that the two leaders of con/lab want to stay in the EU to try to bail it out when the time come so if thing do go wrong they will all go down together.

  40. acorn
    Posted February 24, 2016 at 12:06 pm | Permalink

    You have to remember that playing in the FX market and Treasury bond market, is no different to placing a bet with Ladbrokes or any other Bookie. Neither of them are primary drivers of the economy. In fact the Bond market is totally secondary and parasitic. Treasury Bonds do not fund Treasury (government) spending, the government does not have to issue them. The FX market is nine tenths punters, betting on the equivalent of two flies walking up a window pane; which one gets to the top first. Nothing to do with currency swaps to pay foreign currency invoices.

    The simple theory is that a trade imbalance will force adjustment in relative currency values, to bring trade back into balance. If a trade imbalance persists, it means that one country has decided to “save” another countries’ currency denominated assets. It is possible that if the Pound drops against the Deutsch Mark / Euro, the Germans would instruct the ECB, to start buying Pounds Sterling, to raise its value, so the Germans can keep selling us them BMWs and Mercs.

    Don’t worry too much about the currency Brexit. If the Pound drops, exports will increase faster than import prices will increase.

  41. ian
    Posted February 24, 2016 at 12:10 pm | Permalink

    you can tell that old story till you are blue in the face but facts are facts.

  42. lojolondon
    Posted February 24, 2016 at 12:20 pm | Permalink

    Great comment, John – also notable that the FTSE went up by over 1% on the same day the pound fell – but glossed over by the MSM, because it makes no sense whatsoever – if Brexit fears were driving the one, then how come not the other?

  43. turboterrier
    Posted February 24, 2016 at 12:26 pm | Permalink

    The report it the DM today that Britain’s top civil servant Sir Jeremy Heywood is once again the man with the baton orchestrating Project Fear on behalf of the government.

    You cannot make it up. Has CMD learnt nothing in his time in Westminster?

    (allegation removed ed)

    His orders to his staff banning them from giving assistance to the Eurosceptics and being deprived from having sight of papers relating to their departments, this is nothing but a stitch up and in a moral world the man should fall on his sword. How can any form of trust be levelled at him and his departments. This is nothing short of a very bad episode of Yes Minister. Disgraceful

    CMD must be running scared and I hope that he and all those involved with this wheeling dealing method of operating resign when the leave vote is announced.

    Win or lose play the game by the real rules and above all be credible, the future of this country is at stake. We do not want a repeat performance of the aftermath of the Scottish referendum with all the bad feelings and uncertainty that is still being generated by the losers

  44. jeffery
    Posted February 24, 2016 at 12:29 pm | Permalink

    Yes, this episode was quite extraordinary even by airhead media standards. Worrying was the way the one certified non-airhead, Ed Conway, actually joined in. It was conspicuous that >1% rise in the FTSE was not of similar interest!

    Anyone who thinks they know about exchange rate determination should write up their thoughts on the matter. If they are even approximately right, a Nobel Prize ($1m) awaits!

  45. turboterrier
    Posted February 24, 2016 at 12:50 pm | Permalink

    Well done to Owen Patterson for raising the Heywood situation during QT today.

    CMD agreed with what was sent around to departments!!!

    This man is bloody dangerous when a clearly laid set of rules regarding the referendum process can be just ignored because he see’s it as alright.

    How many other rules and regulations is he going to ride roughshod over.

    He has got to go

  46. Brigham
    Posted February 24, 2016 at 4:26 pm | Permalink

    Correct me if I am wrong, but isn’t a weak pound good for exports. especially if we are trying to export to markets other than Europe?

  47. ian
    Posted February 24, 2016 at 4:38 pm | Permalink

    You are talking about the upper middle class paying more tax not the rich, it foolish to think that someone would pay tax when there is need to do so, the rich have a choice on how much tax they wish to pay and have legally sign agreements with trust lasting for hundred of years so the money handed down with no tax payable and am quit sure you have the same for your family like most MPs and people in the know, I have nothing against it, what I am against is people working for someone and having to pay tax which came in to being after world war 2 and was only going to last till the war debt was paid off and the unpaired rich lost nearly everything and some did, so trust were ramp up with tax avoidance and evasion and when politician found out that they could buy votes by promising people things at elections by taxing them more and the promises are now falling by the wayside and taxes are still going up.

    By taxing people you are doomed to fail and the idea of bring in million of people from overseas in to the country will not work as company like tesco have found out to their cost.
    I do not think you have what it take to put things right, in fact I know the government not capable of putting things right.

  48. Posted February 24, 2016 at 5:26 pm | Permalink

    While nobody wants to leave the EU more than me, there is an irrefutable logic in the Government position concerning the campaign.

    Whether we like it or not, Government policy on the referendum is to remain. Civil Servants are there to implement Government Policy so that’s all there is to say on the subject. It’s one of the bigger hurdles we have to overcome in order to win.

    Where I take exception is the assertion that it is OK for Remain ministers to spend most of their time on campaigning but ministers supporting Out are supposed to only campaign in their spare time. This is clearly unreasonable.

    CMD has not thought things through properly. If he wants the referendum to draw a line under the issue in his party, should he win, it’s essential that the contest is seen to have been a fair contest by both sides. By doing his level best to hamstrung ministers it most certainly will not be seen as free and fair.

    Of course, whatever Komrade Shultz thinks the outcome might be, it is beginning to look like CMD is getting very worried that he might lose. If that’s the case, it will get really nasty because he’s already said winning the referendum is more important than the next election. He’s therefore more likely to accept real turmoil in the party through open warfare in order to win and hang the consequences.

    By the next election DMD will probably be behind a big desk in Brussels as a reward for his loyalty. Whatever we think of him, he would have a whole lot more credibility than losers like Junckers, Barroso and Van Rompuy ( remember him ? )

    He might already be on a promise……….. President Dave.

  49. Margaret
    Posted February 24, 2016 at 5:29 pm | Permalink

    This is where I say . thank goodness someone understands as I don’t , but I get the gist. Weakness and strength of the pound cannot be ascribed to any one particular event which is set in stone as the whole thing is too fluid.

  50. Javelin
    Posted February 24, 2016 at 10:50 pm | Permalink

    want to know what trade is going to be like outside the EU. It’s going to be infinitely better and I’m confident of my maths.

    That’s because trade between the EU and North America literally ground to a halt.

    The EU has failed to sign a trade deal with North America and trade has stopped. Literally stopped.

    You can google it but unbelievably the EU has killed all trade. Killed it all.

    If we leave the EU and sign a trade deal with North America there is a huge opportunity to create wealth between the US and the U.K.

    Reply Unknown link deleted. There is no evidence from official figures that trans Atlantic trade has ceased!

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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