This guest post is from Charles Proctor, a partner at lawyers Fladgate and an acknowledged expert on the legal aspects of money…
Who “owns” sterling?
With the date of Scotland’s independence referendum fast approaching, the debate over a currency for an independent Scotland has reached fever pitch. Read more
Here’s an interesting point from Capital Economics’ Roger Bootle on Tuesday regarding a potential Scottish currency union. They could go down the unilateral adoption route.
To recap, independent Scotland wants to keep the pound via some sort of currency union, ideally based on the BoE continuing to accept Scottish assets as collateral in exchange for sterling liquidity.
The UK, however, is not willing to accept this because it would mean unrestricted UK support for Scottish banks, which may or may not now be regulated to the same standards. Read more
Back in the days of the Great Northern Rock bank run, a long conversation was had in the newsrooms of most media organisations.
Should we hold back from reporting on what are still smallish queues given the potential to exacerbate panic for no reason? Or do we consider this a legitimate story, that we didn’t cause, and cover the hell out of it? Read more
If this is all getting confusing…
Sterling fell on Tuesday after Bank of England governor Mark Carney damped expectations of an imminent UK interest rate.
Appearing before MPs on the House of Commons Treasury select committee, Mr Carney repeatedly stressed that despite a robust recovery in employment and GDP, wage and productivity growth had been slower than expected, indicating there was still additional spare capacity in the labour market…
This guest post on the issue of Scottish independence is from Paul Donovan, Global Economist at UBS in London…
As the referendum on Scottish independence approaches, the rhetoric around the currency arrangements for an independent Scotland has escalated. An unnamed British cabinet minister has been cited as suggesting that currency union could be used as a bargaining chip (specifically in exchange for Trident bases). The casual assumption that a fundamental economic structure can be bargained for political capital is deeply troubling; it is just such approach that created the Euro with the flawed architecture that it has today. Read more
The following is a guest post from Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient. But his approach is informed by the past, and it is there that he finds a framework for an independent Scotland to use the pound, a Plan A Plus.
The rejection by all the Westminster parties collectively of the SNP’s Plan A for a post-independence UK currency union has elicited a string of possible Plan B solutions, several of them already considered and rejected as inferior to Plan A by the SNP’s expert group of ‘wise men’.
But the current debate is ill-founded, since the UK can have no more control over who uses the £ symbol as a unit of account, than they can have control over the use of metres and kilogrammes. Read more
Have a chart from HSBC which, once the key is provided, will explain sterling’s weakness, probably:
Before we get there though we should touch back on Carney’s forward guidance thing, of which there are numerous different takes. Here are three for the hell of it: Read more
According to Nomura, since 1980, there are only two periods of economic divergence — between the US and Europe and the UK — comparable to what we are observing currently.
That’s sterling off 1.2 per cent at pixel… with the weaker currency and generally loose tone of the statement below pushing the Footsie up some 2 per cent.
Here’s the statement that started the dive (our emphasis): Read more
Rising inflation expectations and a diving Great British Krona helped another leg downhill on Tuesday by dire production data.
This does smack of desperation, doesn’t it? From the FT on Thursday morning:
Osborne will use his Budget on March 20 to reinforce his message of “fiscal conservatism and monetary activism” by clarifying how the government intends to use monetary policy to get the economy growing again.
That’s the euro down 0.4 per cent or so against the dollar and crossing the $1.30 mark. Sterling (aka the Great British Krona) is also continuing its torrid start to 2013, losing another 0.9 per cent against the dollar and touching $1.50. Read more
That’s the considered opinion of Julian D. A. Wiseman (most recently head of UK rates strategy at Société Générale but writing on his personal blog here) on the Monday after Moody’s cut its credit rating for the UK from Aaa to Aa1, taking the Bank of England down with it. For those keeping count, that makes it a downgrade that was neither surprising, nor informative nor, in itself, damaging (as Martin Wolf put it)… but more to the point it was just plain silly. Read more
Here’s the dovish BoE minutes that started sterling sliding (click through for the pdf): Read more
It’s Carney live. We know George Osborne is
frustrated excited. Mark Carney, the next Governor of the Bank of England and the man Osborne once called “quite simply the best, most experienced and most qualified person in the world to do the job”, is in front of the Treasury select committee.
Here’s the live feed:
Dark matter may more commonly be associated with physics, space exploration and Professor Brian Cox, but, according to Deutsche Bank’s FX strategist George Saravelos, there’s a good chance that it’s becoming a recognisable force in the world of foreign exchange too.
Of course, whilst you need complex structural analysis of the universe to detect the real dark stuff, in FX its presence is arguably more easily sniffed out. Mostly, says Saravelos, via the closer inspection of short-term derivative flows and the murky parts of balance of payment statistics. Read more
So, would a sovereign downgrade hurt sterling? And if so, how much? It’s hard to model this as historic comparisons are muddy and sterling crosses each obviously carry their own difficulties. Consider this chart from Morgan Stanley, by way of illustration:
The collapse in sterling is really quite eye-catching. Just in time for summer…
So, the UK has apparently been the most targeted nation for inbound M&A in 2012 so far, coming out on top in both nominal terms and as a percent of GDP.
He argues: Read more
Sterling corporate bond issuance is soaring, but euro-denominated bond sales are at a six-year low, reports the FT. UK and international companies have sold more than $42bn worth of sterling-denominated bonds so far this year – a 41 per cent increase compared with the same period last year, according to Dealogic. Meanwhile, euro-denominated corporate bond sales have slumped almost a fifth, to $179bn – the lowest figure for the period since 2005. Dollar bond sales have increased 7 per cent. Corporate borrowing costs have climbed in the UK recently, but not to the same extent as in Europe, leading several continental companies to turn to London’s bond market, including France’s GDF Suez and EDF. UK investors are also open to longer-term bonds than the European market.
Impressive move following the Bank of England rebooting QE…
Please, please, please don’t accuse the Bank of England of getting involved in currency wars.
It hasn’t deliberately deflated the Great British Krona Sterling in the past couple of years. In fact, monetary policy has has nothing, repeat nothing, to do with sterling’s decline. Read more
The Great British Krona has taken a knock following the publication of the September MPC minutes.
Here’s a safe haven idea you may not have thought of.
The Great British Krona. Read more
Compare and contrast.
The yield on the UK 10-year gilt falls below 3 per cent for the first time since November on Tuesday morning… Read more
It confusingly shares a name with a Staines minicab operator…
And a Swedish children’s book… Read more
UK-based interdealer brokers hope that a new interbank lending rate for sterling, to be launched on Monday, could help protect bank balance sheets from fluctuating interest rates, reports the FT. The rate, created for sterling loans, will help UK banks and building societies as well as international institutions which also trade in the pound, hedge rate risks more effectively. The Repurchase Overnight Index Average (Ronia), to be published by the Wholesale Market Brokers’ Association, which represents interdealer brokers, is a secured lending rate that banks charge each other, backed by collateral. Some strategists say Ronia could challenge Libor as the established market benchmark rate as Libor is an unsecured rate, rarely used beyond one month.
Stagflation or not, sterling has responded positively to Wednesday’s GDP release.
From Reuters: Read more
How weak is the dollar?
A timely question asked by Goldman Sachs on Tuesday morning, what with the euro reaching a 15-month high of $1.45 earlier today. Indeed, on the face of it, there is weakness everywhere. Read more