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Why is the pound now falling against the euro?


PaulT
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The budget seemed to give the pound a brief reprieve (the timing was good for me, as I had to transfer funds for a house!), but who knows what the cause is now. The UK is a mess, and there are huge cutbacks effecting everybody. I know people in the police and county council who are suffering, and family members who may lose jobs as a direct result of what's happening. It's still a race to the bottom, and I can't see any reason at present why the pound would be strong... May take some time yet.

Perhaps a financial wallah can give more specific causes, but anecdotals usually reveal many of the reasons.

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It may have something to do with the recently discovered true amount of the UK debt.

Nearly five Trillion ponds .

£5,000,000,000,000

.

To put that number into perspective,

Trillion = 1,000,000,000,000.

One trillion seconds ago – 31,688 years – Neanderthals stalked the plains of Europe.

[:@]

.

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I'm assuming the GBP5Trillion figure has come from costing annuities to cover the public servive and state pension figures, and adding in the recapitalisation of the RBS and Lloyds. Politics gone mad. And very interesting accounting, as only shows one side of the Balance Sheet. Someone after cheap headlines, TaxPayers Alliance, or ONS?

1 Can we see the Assets please.

2 The the RBS and Lloyds stakes are already in profit, so scratch GBP1.5Trillion

3 Pensions are future obligations, not debts.

4 If you rolled this methodology out accross Europe, I can guarantee that France will have at least twice that figure[:D]

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My OH has been speaking to Money Corp.  They have said that the dollar has weakened against the euro and therefore the euro is getting stronger against the pound.  They have no idea how long this will continue.

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When we used to take our hols towards the end of July, the £ always, always, dived against the franc or more recently the €.

Someone in the financial world will doubtless say that my subjective observation is rowlocks, but .........[;-)]

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[quote user="Bugsy"]It may have something to do with the recently discovered true amount of the UK debt.
Nearly five Trillion ponds .
£5,000,000,000,000 .

To put that number into perspective,
Trillion = 1,000,000,000,000.
One trillion seconds ago – 31,688 years – Neanderthals stalked the plains of Europe.


[:@]

[/quote]

Thanks for the replies and good illustration - however, I think in some places Neanderthals still stalk the Earth - look at that lot making a hero out of Moat.

We are in France on the 23rd and a couple of weeks ago I thought 'we will get a lot more euros for our pound (nothing like the 1.5 when we bought our house). But each day it just drops - will draw the money out as soon as we can, at least it will be one of the best rates available via Nationwide.

Paul

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[quote user="velcorin"]Pensions are future obligations, not debts.[/quote]With respect, I think that's just word play. 

Every company is required to show the estimated value of future pension obligations as a liability in its balance sheet.  If it didn't, it would be falsely stating its financial position, and its financial director would probably get fired.

I've never understood why a government shouldn't be subject to the same rule.  And the government's financial director is the Chancellor of the Exchequer.

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The obligation is incurred by the State (not the Govn), which is considered a permanent entity. There will aways be a State, and there will always be taxpayers, so it is considered perfectly reasonable, to transfer pension obligations to the current beneficiaries, to future generations. It is the European Social Model. A Company is a non-permanent entity, hence the differing accounting rules for pensions. All countries do it. For example the EUR2trillion required in France for nuke decommissioning is an oblgation, not a debt. Same with state pensions, and state owned companies' pensions, like SNCF, EdF or France Telecom, no charge is incurred on the Balance Sheet. Hence, my comment about the true position in France when using the same methodology.

Under the "benefit of use" rule I would accept you could make an arguement that PFI should be considered as a debt. However, no other country uses that method (eg private hospitals in France), so I'd take it that it is considered perfectly reasonable to have this off Balance Sheet. I would also accept that state owned companies in France gain an unfair competative advantage when not accounting for pensions, something the EU is still considering at the instigation of Germany.

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[quote user="velcorin"]The obligation is incurred by the State (not the Govn), which is considered a permanent entity. There will aways be a State, and there will always be taxpayers, so it is considered perfectly reasonable, to transfer pension obligations to the current beneficiaries, to future generations. It is the European Social Model. A Company is a non-permanent entity, hence the differing accounting rules for pensions. All countries do it...[/quote]

I understand your point (although the fact that all countries do something isn't necessarily a recommendation).

Perhaps I'm more sceptical than you about the motives of governments.  If you are a politician whose objective is to be popular, it's useful to be able to give money to voters in the form of pensionable employment in the public sector without having to disclose the existence of all those nasty unfunded pension obligations.  As you say, the next generation will take care of those, and by then you'll be out of office.

I agree that there's a distinction between the State and the Government.  But it's the Government that makes the decisions that bind the State, and it's the Government that presents the numbers that are supposed to show the State's financial position.   

By the way, I'm not arguing that all pension obligations should have to be fully funded.  I think there are reasons against that.  I'm only arguing for full disclosure.   And if full disclosure would have an effect on the value of the currency, that's as it should be.

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[quote user="allanb"]

Perhaps I'm more sceptical than you about the motives of governments.  If you are a politician whose objective is to be popular, it's useful to be able to give money to voters in the form of pensionable employment in the public sector without having to disclose the existence of all those nasty unfunded pension obligations.  As you say, the next generation will take care of those, and by then you'll be out of office.
[/quote]

I doubt you're more sceptical than me[:D]

How do you know a politician is lying? His lips are moving. Applies anywhere in the world.

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Once apon a time the pound was strong and we got 1.40 to 1.60 Euros to the pound then Labour won an election and systematically destroyed the UK economy to the point where it very nearly, to within a cent, got to parity. During this time the Euro has stayed pretty stable, only the other day the Chinese bought a shed load of the stuff in preference to dollars. The financial guys, who are basically controlled by the information generated in the US (they are dollar orientated) will always play the Euro down. It is of course in Americas interest to see the Euro fail and indeed see the EU fail because its bigger than them and they are gradually loosing their sphere of influence in Europe (with the exception of the UK that is).

Remember the posts a while back, somebody even posted a link to a newspaper article where American financial bods where predicting the crash of the Euro within weeks but it never happened. If you look back through all the news these people have been predicting the crash of the Euro for nearly two years now and it simply has not happened. Look at prices in French shops, they don't change that much and in some cases things like white goods have become cheaper (TV's and washing machines come to mind). What I am saying is the Euro has plodded along and stayed much the same, this is why the likes of China buy it because it is stable and not going up and down like a yo-yo where you don't know the price of goods from one day to the other.

What has happened in the UK is that by having a new government who are tackling the UK debts head on creates confidence in the pound, OK its only a little confidence but it's enough to make it get stronger. So its not the Euro that's getting weaker, its stayed much the same, its the pound getting stronger. Unfortunately until real big inroads are made in to the current UK debt the days of 1.40 (and stable at 1.25 even) to the pound are a very long way away.

I did a bit of maths a while back when Cameron spoke about the interest payments on the debt and even with a 5% interest on the debt the figures simply didn't add up to what we were told the debt is, it was much higher. I seem to remember that to get to the figure quoted the interest rate would have to 0.5% or lower which quite frankly I could not imagine being correct, so to see £5 trillion does not shock me at all, I thought it might be even higher.

Who was it that bet me 50 Euros the pound would be at 1.25 by Christmas last, I would love to know (seriously) which charity benefited from my wager.

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  • 4 weeks later...

Just checked the rate a few seconds ago and it was 1.2162.

I read in the FT yesterday that, of the eurozone countries, only Germany's economy is powering ahead and that France's recovery has practically stalled and the predictions for France's growth were over-optimistic.

Not only that, new taxes apparently are going to be unveiled in France in the next few months, to offset the indifferent performance of the economy.

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The problem with English papers is that they think in 'countries' and not in the sense of the EU as one big state. The EU's growth rate as a whole increased by 0.8% over the last 3 months taking it to 1% which according to La Parisien is higher than the US for the same period. Projected growth rate in the EU is much higher than either the US or the UK over the next 12 months where as the BoE has, according to the London markets, greatly over estimated the UK growth rate for the same period (BBC News yesterday). Still those that guess whats going to happen aren't that clever I mean the Euros will be at 1.25 or more by Christmas last and by now it was supposed to be up in the mid 40's. You can get better predictions tossing a coin. [;-)] Next weeks winning Lottery numbers anyone? [:D]
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[quote user="Jazzer"]The rate yesterday was roughly 1.21,tourist rate 1.18 and HIFX quote 1.16 for a transaction of 1500€. Bizarre![/quote]For paltry sums (and €1500 IS paltry to a broker) you can usually expect to suffer relatively higher charges. Typically they make their profit by scraping a fraction off the wholesale rate, and also likely have a minimum, so it doesn't take much to work out that they have to scrape more off a paltry sum than they would from a more substantial one.

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I quite understand the amount is paltry. Don't know what the rate was at cash machines yesterday, but on the surface it would seem that for those who are lucky enough(for the moment) to have transaction free charges they are better off.
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For sums up to 12500€* I have never seen the point in using a currency firm rather than just transferring the money bank to bank.

My French bank charges me 2,5€  and my German bank 55c.  In both cases the exchange rate is virtually the quoted mid-point for the day.

 

* This is the first reporting point for money laundering regualtions and above that both of my banks at least add a transaction fee.

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