Home
Commentary: USD correction continues to be postponed !
Will the Fed raise rates any further? !
Korean Won remains ‘stable’ in wake of nuke test !
Pound and Euro move in lockstep !
How does public debt affect currencies? !
UK inflation data buoys Pound !
Russia buys Yen for forex reserves !
Emerging Market currencies hurt by risk aversion !
NZD strength attributed to hedge funds !
ECB lowers rate hike expectations !
Canada promises to forego intervention !
Thai Baht shakes off political crisis !
China’s forex reserves on track to reach $1 trillion !
How high will the Kiwi go? !
G7 avoid talk of Yen intervention !
Commentary: RMB’s appreciation is tied to inflation !
G7 will discuss Japanese Yen !
Foreign exchange market !
Forex scam!
Financial market!
FOREX 101!
Exchange rate!
Exchange rate regime!
Fixed exchange rate!
Futures exchange!
Products
Currency!
Currency future!
Pound and Euro move in lockstep
In recent years, the British Pound and the Euro have begun to converge in value, so much so that both currencies have traded within 5% of each other for almost a year now. There are a couple of explanations for this trend. First, the relationship between the Pound and the Euro are largely symbolic. Perhaps, investors are grouping the two currencies together because of some perceived economic and/or political similarities. Second, it seems that all of the currencies that are supported by any semblance of sound economic fundamentals have risen against the USD, so it is possible that the Pound-Euro convergence is simply the result of both currencies simultaneously appreciating against the USD. Monetary policy and economic cycles are not aligned in Europe and Britain, so it doesn’t seem this link has any strong fundamental basis. Whatever the reason, in all aspects except for in name, the Pound has officially been absorbed into the Euro. The Financial Times reports:
From the euro’s launch in January 1999 until 2003, the pound initially traded in a wide 21.1 per cent range against the euro. Since then, volatility has been significantly reduced with the trading range falling to 8.6 per cent in 2004 and 7.1 in 2005.
Read More: Sterling in accord with the euro
Sterling in accord with the euro
By Peter Garnham in London
Nothing much happened to the sterling/euro exchange rate last week. Not much happened last month. In fact, nothing much has happened all year.
This year, sterling has settled into a tight trading range against the shared currency, fluctuating in a 5 per cent valuation band, continuing a trend of steadily reducing volatility over the past three years. So tight is the trading range that some analysts now argue that markets have now achieved what the European Exchange Rate Mechanism failed to do – a pound that trades in a stable, close band against a shared European currency benchmark.
Simon Derrick, currency research chief at the Bank of New York, says the UK has achieved the benefits of euro membership without the pitfalls.
“Despite the gradual dropping of all talk of sterling joining the euro, the UK has achieved exactly what was needed: a stable currency pitched at a sensible level while still maintaining a flexible monetary policy,” he said.
When sterling entered the ERM back in 1990, the pound was allowed to fluctuate by 2.25 per cent on either side of a central rate. That total band of 4.5 per cent is not that much different from the market-determined band the pound trades in today.
In September 1992, the pound was forced out of the ERM, leaving the UK Treasury with a £3.3bn ($6.21bn) bill for the Bank of England’s failed efforts to support sterling in the face of a huge wave of speculative selling.
From the euro’s launch in January 1999 until 2003, the pound initially traded in a wide 21.1 per cent range against the euro. In 2001 and early 2002 when the trading range narrowed to single digits before the pound fell sharply.
Since then, volatility has been significantly reduced with the trading range falling to 8.6 per cent in 2004 and 7.1 in 2005. Over the last month, the volatility of the pound against the euro was about one third of the level it reached in 2003.
In contrast to the pound’s stability against the euro, the UK currency fluctuated in a 8.9 per cent band against the dollar.
Mr Derrick said the recent lack of volatility in the exchange rate between sterling and the euro was a vindication of the UK having a truly independent central bank and taking a properly non-interventionist approach to the currency markets.
Copyright The Financial Times Limited 2006
Yến !Huyền !Loan !Thanh !Thuý !Lan !Linh !Hiền !