r00lish67
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Post by r00lish67 on Oct 29, 2017 16:06:20 GMT
Some correlation to the "will interest rates rise" thread ongoing, but I'd be interested to know how you all feel about whether Sterling will continue its post-Brexit downward trend against EUR/USD?
This is a direct concern for me as I'm abroad for a great deal of the year, but of course affects everyone with the eventual impact of inflation and other factors.
My current gut feel (i'd love you to change it) - the slight rebound caused by markets pricing in an interest hike will be short-lived, and with the ongoing march towards 'freedom' we're undertaking, the £ will continue to fall over the coming months and years. Whether there's the occasional plummet to boot will depend on things like agreement on soft Brexit or JC coming to power.
Either way, it feels to me like the corrosion is insidious and ongoing, as the finance sector gradually drifts away to Germany, immigrants in all sectors decide they're more welcome elsewhere, and the Government du Jour desperately spins around in no particular direction trying to please everybody. Only a miraculous reversal of Brexit, which does not seem likely currently, could change things. But each day we continue to move away from predictability, it feels like the £ only has one way to go.
If I had to put numbers to it, unless something changes, perhaps we could go to 90p to the Euro in the next 2-3 years? I don't know.
I'm sure it's deeply transparent about how I feel about Brexit from the above, and I don 't really want this to be the new Brexit thread, but it's difficult to see how it couldn't be the main determinant over the next few years one way or another. if you have a different view of something else being more relevant to the fate of Sterling or if you're Pro-Brexit and can detail why you feel I'm wrong, I'd be interested to hear it.
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yangmills
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Post by yangmills on Oct 29, 2017 16:47:05 GMT
I find it hard to take a view on Sterling. Here is a chart of the trade weighted basket since the early 1990s (lower = weaker)  Basically at a fundamental level nothing is really in it's favour. Versus our peers we have a high current account deficit, high CPI, low growth, poor rate differentials, Brexit looking like a train wreck etc. Valuations, however, mean that it's very cheap. Cheap enough to argue we normally strengthen from this point. Moreover, consensus is fairly bearish Sterling across the street. I refuse to touch it in my day job; simply too 50:50. At a personal level, I repatriated some profits from being very long US dollars back into GBP in 1Q17 but since then nothing. Paralysed by indecision to be honest. I don't precisely know what my neutral asset allocation is in terms of GBP vs foreign currencies. It's definately biased toward owning significant amount of foreign currency (since I buy little that is UK made and most services I use in London tend to be effectively priced in USD, like school fees). However, I also earn in USD so that means GBP strength effectively makes my income shrink. |
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bg
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Post by bg on Oct 29, 2017 17:02:05 GMT
I think there's a lot of bad news priced into GBP and on that basis I think it will strengthen in the longer term provided Jeremy Corbyn does not get into power. My gut feel also tells me that things seem too expensive when I travel abroad. I tend to think 1.30-1.40 v EUR and 1.40-1.50 v USD is a 'fairer price'.
Nearer term anything could happen...if a headline pushed it through par against the euro I would put a spread bet on it strengthening back. Even though I am against brexit and think it's damaging for the UK I still think the UK is a great country that has a lot to offer and that the GBP should be stronger.
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IFISAcava
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Post by IFISAcava on Oct 29, 2017 17:15:55 GMT
I find it hard to take a view on Sterling. Here is a chart of the trade weighted basket since the early 1990s (lower = weaker) Basically at a fundamental level nothing is really in it's favour. Versus our peers we have a high current account deficit, high CPI, low growth, poor rate differentials, Brexit looking like a train wreck etc. Valuations, however, mean that it's very cheap. Cheap enough to argue we normally strengthen from this point. Moreover, consensus is fairly bearish Sterling across the street. I refuse to touch it in my day job; simply too 50:50. At a personal level, I repatriated some profits from being very long US dollars back into GBP in 1Q17 but since then nothing. Paralysed by indecision to be honest. I don't precisely know what my neutral asset allocation is in terms of GBP vs foreign currencies. It's definately biased toward owning significant amount of foreign currency (since I buy little that is UK made and most services I use in London tend to be effectively priced in USD, like school fees). However, I also earn in USD so that means GBP strength effectively makes my income shrink. The two earlier weakness points were related to the early 90's recession then the 2008 financial crisis, with recoveries as they ended. Current weakness is directly related to the self-harm that is Brexit. How it pans out for Sterling depends on how you think Brexit is going and will go. In other words the only way is down. Unless there is a seemingly unlikely and rapid rebirth of common sense in the Conservative Party, a hard or cliff-edge Brexit is likely followed by the most left wing Labour government in generations (or perhaps ever) as the Brexit chickens come home to roost and the incumbents are punished. Both very bad news for the pound. I'm accruing via various means a position in foreign currencies (Euro denominated P2P; US, European, Asian and Emerging markets stocks; a bit of currency; some commodities with a Dollar or Euro price base; etc). I earn only in Sterling so gotta protect things as best I can.
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IFISAcava
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Post by IFISAcava on Oct 29, 2017 17:23:07 GMT
I think there's a lot of bad news priced into GBP and on that basis I think it will strengthen in the longer term provided Jeremy Corbyn does not get into power. My gut feel also tells me that things seem too expensive when I travel abroad. I tend to think 1.30-1.40 v EUR and 1.40-1.50 v USD is a 'fairer price'. Nearer term anything could happen...if a headline pushed it through par against the euro I would put a spread bet on it strengthening back. Even though I am against brexit and think it's damaging for the UK I still think the UK is a great country that has a lot to offer and that the GBP should be stronger. That was before the devaluation inflation hit the UK. It won't seem so off once we've finished this bout of inflation. It's also because the UK's real wages have dropped whereas in the rest of northern Europe they've risen, so naturally services/consumer goods are higher where there is more income. My long term prediction is parity with the Euro is where we re heading, and 1.25 to the dollar. Of course, if the mythical sunny uplands really do arrive, 10-20 years hence, we might see some reversal.
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bg
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Post by bg on Oct 29, 2017 17:38:26 GMT
I think there's a lot of bad news priced into GBP and on that basis I think it will strengthen in the longer term provided Jeremy Corbyn does not get into power. My gut feel also tells me that things seem too expensive when I travel abroad. I tend to think 1.30-1.40 v EUR and 1.40-1.50 v USD is a 'fairer price'. Nearer term anything could happen...if a headline pushed it through par against the euro I would put a spread bet on it strengthening back. Even though I am against brexit and think it's damaging for the UK I still think the UK is a great country that has a lot to offer and that the GBP should be stronger. That was before the devaluation inflation hit the UK. It won't seem so off once we've finished this bout of inflation. It's also because the UK's real wages have dropped whereas in the rest of northern Europe they've risen, so naturally services/consumer goods are higher where there is more income. My long term prediction is parity with the Euro is where we re heading, and 1.25 to the dollar. Of course, if the mythical sunny uplands really do arrive, 10-20 years hence, we might see some reversal. Despite some of the headlines the inflation differentials between the U.K. and US/EUR are fairly insignificant.....certainly not enough to cause a 20% swing in the relative price of a pint of beer that I'm looking for!
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IFISAcava
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Post by IFISAcava on Oct 29, 2017 17:46:29 GMT
That was before the devaluation inflation hit the UK. It won't seem so off once we've finished this bout of inflation. It's also because the UK's real wages have dropped whereas in the rest of northern Europe they've risen, so naturally services/consumer goods are higher where there is more income. My long term prediction is parity with the Euro is where we re heading, and 1.25 to the dollar. Of course, if the mythical sunny uplands really do arrive, 10-20 years hence, we might see some reversal. Despite some of the headlines the inflation differentials between the U.K. and US/EUR are fairly insignificant.....certainly not enough to cause a 20% swing in the relative price of a pint of beer that I'm looking for! Give it some time...! There's also the volume issue - in many countries people drink a lot less than the UK so the bar has to make profit from fewer drinks sold. Perhaps you can do a pint of beer index to rival the Economist's Big Mac index?!
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Post by bracknellboy on Oct 29, 2017 17:52:37 GMT
Despite some of the headlines the inflation differentials between the U.K. and US/EUR are fairly insignificant.....certainly not enough to cause a 20% swing in the relative price of a pint of beer that I'm looking for! Give it some time...! There's also the volume issue - in many countries people drink a lot less than the UK so the bar has to make profit from fewer drinks sold. Perhaps you can do a pint of beer index to rival the Economist's Big Mac index?! The merit of the Big Mac index is the homogeneity (and some would argue dullness) inherent in the comparitor. What truth will be revealed by comparing the price of a pint of tepid brown flat british ale, against a cold straw coloured half litre of liquor of european origin ? [For the record...I like my ale...]
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r00lish67
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Post by r00lish67 on Oct 29, 2017 17:53:36 GMT
Despite some of the headlines the inflation differentials between the U.K. and US/EUR are fairly insignificant.....certainly not enough to cause a 20% swing in the relative price of a pint of beer that I'm looking for! Give it some time...! There's also the volume issue - in many countries people drink a lot less than the UK so the bar has to make profit from fewer drinks sold. Perhaps you can do a pint of beer index to rival the Economist's Big Mac index?! Come to the quite literal 'sunny uplands' here in the outer Canary islands. Only 1.50 euros for a bottle of beer, or possibly less. Unfortunately that beer is almost certainly Dorada, which doesn't quite compare to a pint of Landlord's (curses, where's the beer drinking emoticon when you need one?). Edit: Crossed with bracknellboy, yes indeed!
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bg
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Post by bg on Oct 29, 2017 17:54:15 GMT
Despite some of the headlines the inflation differentials between the U.K. and US/EUR are fairly insignificant.....certainly not enough to cause a 20% swing in the relative price of a pint of beer that I'm looking for! Give it some time...! There's also the volume issue - in many countries people drink a lot less than the UK so the bar has to make profit from fewer drinks sold. Perhaps you can do a pint of beer index to rival the Economist's Big Mac index?! I've been using it as my benchmark for quite sometime now. I feel it gives me quite an edge over the market as most people do not have the capacity to undertake the arduous research necessary in maintaining such an index. I've just returned from a trip to the US and was shocked to see some of the prices. $16 a can of beer at an NFL game in LA, $11.50 for a pint at the baseball in SF.....expensive cities, not typical of the US as a whole I know but when you add in that a US pint is in fact 20% smaller than a UK pint (16 fl oz v 20 fl oz) it only helps reinforce my bullish GBP stance.
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r00lish67
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Post by r00lish67 on Oct 29, 2017 17:59:27 GMT
Give it some time...! There's also the volume issue - in many countries people drink a lot less than the UK so the bar has to make profit from fewer drinks sold. Perhaps you can do a pint of beer index to rival the Economist's Big Mac index?! I've been using it as my benchmark for quite sometime now. I feel it gives me quite an edge over the market as most people do not have the capacity to undertake the arduous research necessary in maintaining such an index. I've just returned from a trip to the US and was shocked to see some of the prices. $16 a can of beer at an NFL game in LA, $11.50 for a pint at the baseball in SF.....expensive cities, not typical of the US as a whole I know but when you add in that a US pint is in fact 20% smaller than a UK pint (16 fl oz v 20 fl oz) it only helps reinforce my bullish GBP stance. Good work, keep putting in those hours! I'm no expert by any means but I'm not sure your value logic works though, as it suggests some sort of inherent 'fairness' should apply to currency where I'm not sure it does. I go to Poland alot, and am a big fan of the beer. Even post-Brexit, sitting in a lovely (relatively touristic) old town square, beer is very very cheap by UK standards. By your logic, wouldn't Polish people feel totally aggrieved at the prices of lager in the UK and feel that it must change i.e. Sterling must devalue further?
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bg
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Post by bg on Oct 29, 2017 18:13:04 GMT
I'm no expert by any means but I'm not sure your value logic works though, as it suggests some sort of inherent 'fairness' should apply to currency where I'm not sure it does. I go to Poland alot, and am a big fan of the beer. Even post-Brexit, sitting in a lovely (relatively touristic) old town square, beer is very very cheap by UK standards. By your logic, wouldn't Polish people feel totally aggrieved at the prices of lager in the UK and feel that it must change i.e. Sterling must devalue further? Ah but it doesn't really work like that. It's quite complicated (I developed the methodology in my early twenties over a number of years of drinking around Europe and it's a very complicated algorithm) but there are other variables that you have to take into account. A big one is expectation...if I go to Poland (in particular outside the big cities) then I expect the beer to be dirt cheap (likewise I imagine they expect the beer in the UK to be expensive when they come over here). If I goto Paris I expect it to be expensive but I kind of have an idea of what I think it should be - probably roughly London prices plus a bit more cos they also have smaller glasses and its more likely to be sunny (everyone is happy to pay a bit more for a beer if its sunny). Likewise when I go to an NFL game in LA I expect it to be more expensive than the UK but not £12 for 80% of a pint.....that is just plain wrong, especially when Bud light tastes like p*ss!
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IFISAcava
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Post by IFISAcava on Oct 29, 2017 18:29:38 GMT
I'm no expert by any means but I'm not sure your value logic works though, as it suggests some sort of inherent 'fairness' should apply to currency where I'm not sure it does. I go to Poland alot, and am a big fan of the beer. Even post-Brexit, sitting in a lovely (relatively touristic) old town square, beer is very very cheap by UK standards. By your logic, wouldn't Polish people feel totally aggrieved at the prices of lager in the UK and feel that it must change i.e. Sterling must devalue further? Ah but it doesn't really work like that. It's quite complicated (I developed the methodology in my early twenties over a number of years of drinking around Europe and it's a very complicated algorithm) but there are other variables that you have to take into account. A big one is expectation...if I go to Poland (in particular outside the big cities) then I expect the beer to be dirt cheap (likewise I imagine they expect the beer in the UK to be expensive when they come over here). If I goto Paris I expect it to be expensive but I kind of have an idea of what I think it should be - probably roughly London prices plus a bit more cos they also have smaller glasses and its more likely to be sunny (everyone is happy to pay a bit more for a beer if its sunny). Likewise when I go to an NFL game in LA I expect it to be more expensive than the UK but not £12 for 80% of a pint.....that is just plain wrong, especially when Bud light tastes like p*ss! AND you have to tip on top of that $16 beer. I think they should tip us for being prepared to pay that much. It is noticeable that at 1.30, nowhere in the US is cheap to drink, and I am used to London prices. For a decent ale that is £4.20 in London, the equivalent price in the US would have to be $4.20*0.8 (pint size)*1.3 (exchange rate) - 1 (tip) = $3.37. Decent beer (IPAs etc, not beer-free beer like Millerlite/Budlite) in the US cost double that.
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jo
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Post by jo on Oct 29, 2017 18:37:42 GMT
Sterling against the dollar had it's first monthly close below 1.40 since 1985 ish in ~Feb 2016 (can't see a chart so I'm posting from memory).
That in itself was a bearish warning. It pottered around 1.43 leading up to the brexit vote and very briefly went >1.50 on the exit poll - before dumping 15 big figures on the Sunderland vote to 1.35.
I think a flash crash low. which happened in the States, was around 1.17 before a steady, if uninspiring recovery to 1.35 then where we are today.
As for outlook, difficult to say. Historically sterling goes up by the stairs but down by the elevator. That said, once it's apparent just what a gigantic nothingburger brexit actually is, I would expect it to rise to ~1.40 before the next proper dynamic kicks in (whatever that might be).
Against the euro, I have a sell eur/gbp order at 94 but wouldn't let it run too far against me if it gets triggered.
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Post by beeje13 on Oct 29, 2017 18:45:20 GMT
It's rallied from the low of 1.20 against the dollar, I wouldn't say it's on a downward trend.
And it was overvalued before brexit, now it's "cheap". Source: Regression analysis at Pyrford.
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