FT : (http://www.ft.com/cms/s/0/b8c92972-a8ef-11de-b8bd-00144feabdc0.html?ftcamp=rss&nclick_check=1)
Currency traders took comments from Mervyn King, governor of the Bank of England that the central bank was comfortable with a weaker pound, led to a sell off for the Sterling which dropped to a fresh five-month low against the euro. Mr King commented that the sterling’s fall was “helpful” in rebalancing the UK economy since a fall in the exchange rate will support a shift of resources into net exports that compete with imports and help to reduce the trade deficit. Economics explain that if a currency such as the sterling weakens, export becomes cheaper relative to more expensive imports and thus, theoretically, more goods/services would be exported while expensive import would make consumers less excited about imports. However, Ulrich Leuchtmann at Commerzbank noted that playing down the sterling as a new tool to kick-start the economy, was dangerous as he noted that BOE was “playing with fire”. He quoted “It is usually quite easy for a central bank to weaken its own currency but much more difficult to stabilise it again,” he said. The problem was further exacerbated by the news that business confidence in Germany was recovering pushing € to greater heights against the sterling. (Germany’s Ifo index rose for a sixth consecutive month). When reading the article, one realises that the article is written very one sided. The emphasis by the author is heavily laid on the positive effects of the weak pound rather than explaining why a weak pound could be bad.
Telegraph (http://www.telegraph.co.uk/finance/currency/6234980/Weak-pound-is-permanent--economists-warn.html):
In this article, it noted that the high level of national debt, smaller financial services contribution and the efforts made to rebalance the UK economy will see a long-term weakness in sterling. Most economist believe that this weakness is here to stay for a long time including Erik Britton, Fathom Consulting, Paul Robson and currency strategist with RBS. They anticipate that the weaker pound should see it approaching parity to the € in the foreseeable future. Mr Britton said concerns over the “public finances could drive the pound down beyond the level required for a rebalancing of the economy.” What this implies is that with the underlying real economy facing tremendous pressures from high bad debts, mounting public debt, imbalances in finances, and thus the desire to spur exports are unlikely to see a balance in the UK economy in the future. Again this article is very bias, painting a very black picture, which I have found to be the most popular tone in this news paper.
Bloomberg : (http://www.hurriyetdailynews.com/n.php?n=pound-crisis-a-risk-hsbc-economist-warns-2009-10-16 ) in an article “Pound crisis a risk, HSBC” yesterday (16/10) noted by Stephen King, HSBC Holdings Chief Economist that Britain is likely to face a currency crisis after policy makers allowed the pound to become “seriously undermined, with the sterling touching a four-month low against the dollar in September 2009 after Bank of England Governor Mervyn King remark. He concurred with Erik Britton, Fathom Consulting (Telegraph article above) that a small fall can turn into a very large fall, there is definitely a danger. Bloomberg, as always very easy to read and accounting for both negative and positive effects.
To assess how the weaker pound has benefited the exports, a number of articles have been extracted from various relevant sources.
BBC(http://news.bbc.co.uk/1/hi/business/8260487.stm)
The BBC article “Growth in UK retail sales stalls” notes that despite the government efforts to increase money supply, in addition to allowing pound to weaken, consumers are extremely cautious and it cast doubt over the currency picture as well. There were signs of growth in retail (1.3%), food(0.7%) and mail order(1.2%) but all non food and household goods showed declines in August 09. The article concluded that it did not appear to suggest that the weaker sterling has improved export orders. Like the telegraph this article again is very negative towards the future outlook, despite the weak pound perhaps having a positive effect on exports.
This is Money website (http://www.thisismoney.co.uk/exchange-rates) noted 13/10/2009 in an article “Exchange rates: What next for the pound” that the weaknesses of sterling is a major issue for most businesses and households. As the pound has dropped in value against other major currencies like the dollar and euro, travelling abroad has become much more expensive. Imported goods have caused inflation on basic prices for British firms and consumers. On the other hand, UK exporters have welcomed the weaker pound as it makes their goods cheaper to foreign markets. This article for me was very helpful in grasping the whole situation, on par with Bloomberg.
Looking at all these articles in conclusion, there are diverse views from the recent decision by Melvyn King’s recent announcement about the sterling and while it does not deny the impact of this fiscal initiative, there are underlying concern whether the real economy can cope with the scale and size of the various BOE policy initiatives towards economic recovery.
Currency traders took comments from Mervyn King, governor of the Bank of England that the central bank was comfortable with a weaker pound, led to a sell off for the Sterling which dropped to a fresh five-month low against the euro. Mr King commented that the sterling’s fall was “helpful” in rebalancing the UK economy since a fall in the exchange rate will support a shift of resources into net exports that compete with imports and help to reduce the trade deficit. Economics explain that if a currency such as the sterling weakens, export becomes cheaper relative to more expensive imports and thus, theoretically, more goods/services would be exported while expensive import would make consumers less excited about imports. However, Ulrich Leuchtmann at Commerzbank noted that playing down the sterling as a new tool to kick-start the economy, was dangerous as he noted that BOE was “playing with fire”. He quoted “It is usually quite easy for a central bank to weaken its own currency but much more difficult to stabilise it again,” he said. The problem was further exacerbated by the news that business confidence in Germany was recovering pushing € to greater heights against the sterling. (Germany’s Ifo index rose for a sixth consecutive month). When reading the article, one realises that the article is written very one sided. The emphasis by the author is heavily laid on the positive effects of the weak pound rather than explaining why a weak pound could be bad.
Telegraph (http://www.telegraph.co.uk/finance/currency/6234980/Weak-pound-is-permanent--economists-warn.html):
In this article, it noted that the high level of national debt, smaller financial services contribution and the efforts made to rebalance the UK economy will see a long-term weakness in sterling. Most economist believe that this weakness is here to stay for a long time including Erik Britton, Fathom Consulting, Paul Robson and currency strategist with RBS. They anticipate that the weaker pound should see it approaching parity to the € in the foreseeable future. Mr Britton said concerns over the “public finances could drive the pound down beyond the level required for a rebalancing of the economy.” What this implies is that with the underlying real economy facing tremendous pressures from high bad debts, mounting public debt, imbalances in finances, and thus the desire to spur exports are unlikely to see a balance in the UK economy in the future. Again this article is very bias, painting a very black picture, which I have found to be the most popular tone in this news paper.
Bloomberg : (http://www.hurriyetdailynews.com/n.php?n=pound-crisis-a-risk-hsbc-economist-warns-2009-10-16 ) in an article “Pound crisis a risk, HSBC” yesterday (16/10) noted by Stephen King, HSBC Holdings Chief Economist that Britain is likely to face a currency crisis after policy makers allowed the pound to become “seriously undermined, with the sterling touching a four-month low against the dollar in September 2009 after Bank of England Governor Mervyn King remark. He concurred with Erik Britton, Fathom Consulting (Telegraph article above) that a small fall can turn into a very large fall, there is definitely a danger. Bloomberg, as always very easy to read and accounting for both negative and positive effects.
To assess how the weaker pound has benefited the exports, a number of articles have been extracted from various relevant sources.
BBC(http://news.bbc.co.uk/1/hi/business/8260487.stm)
The BBC article “Growth in UK retail sales stalls” notes that despite the government efforts to increase money supply, in addition to allowing pound to weaken, consumers are extremely cautious and it cast doubt over the currency picture as well. There were signs of growth in retail (1.3%), food(0.7%) and mail order(1.2%) but all non food and household goods showed declines in August 09. The article concluded that it did not appear to suggest that the weaker sterling has improved export orders. Like the telegraph this article again is very negative towards the future outlook, despite the weak pound perhaps having a positive effect on exports.
This is Money website (http://www.thisismoney.co.uk/exchange-rates) noted 13/10/2009 in an article “Exchange rates: What next for the pound” that the weaknesses of sterling is a major issue for most businesses and households. As the pound has dropped in value against other major currencies like the dollar and euro, travelling abroad has become much more expensive. Imported goods have caused inflation on basic prices for British firms and consumers. On the other hand, UK exporters have welcomed the weaker pound as it makes their goods cheaper to foreign markets. This article for me was very helpful in grasping the whole situation, on par with Bloomberg.
Looking at all these articles in conclusion, there are diverse views from the recent decision by Melvyn King’s recent announcement about the sterling and while it does not deny the impact of this fiscal initiative, there are underlying concern whether the real economy can cope with the scale and size of the various BOE policy initiatives towards economic recovery.
It seems to me all you have done here is paraphrase what these articles have said. Where is your critical analysis of the language or comparison of the bias? where is your conclusion. Disappointing. 4/10
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