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Tories could be making sterling a rod for their own back

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BRITAIN-CONSERVATIVES/Talking down the pound could have some pretty bad consequences.

Ever since the debacle of sterling being forced out of the European exchange rate in September 1992, British officials and politicians have maintained a stiff upper lip when talking about the pound.

The Conservative government spent billions of pounds and jacked up interest rates to defend the currency back then, but to no avail. The party’s reputation for economic competence was lost, paving the way for Labour’s big win in 1997.

The one lesson that everyone obeyed was there was no point trying to manipulate the currency because you could not buck the market.

I can only remember one occasion when Gordon Brown, chancellor of the exchequer for a decade before he became prime minister, made the kind of currency comment that news agencies and euro zone politicians love.

from Global Investing:

Global FTSE 100 shrugs off parochial UK GDP data

Britain's FTSE 100 seems to be almost impervious to any bad data that can be thrown at it. GDP data shocked the market showing the UK unexpectedly contracted in the third quarter.

Sterling tumbled more than a cent against the greenbackand gilts jumped while the FTSEurofirst 300 pan-European equity index trimmed gains considerably.

from Global Investing:

Pity Poor Pound

Britain's pound has long been the whipping boy of notoriously fickle currency markets, but there are worrying signs that it's not just hedge funds and speculators who have lost faith in sterling. Reuters FX columnist Neal Kimberley neatly illustrated yesterday just how poor sentiment toward sterling in the dealing rooms has become and the graphic below (on the sharp buildup of speculative 'short' positsions seen in U.S. Commodity Futures Trading Commission data) shows how deeply that negative view has become entrenched.              

 While the pound's inexorable grind down to parity with the euro captures the popular headlines, the Bank of England's index of sterling against a trade-weighted basket of world currencies shows that weakness is pervasive. The index has lost more than a quarter of its value in little over two years -- by far the worst of the G4 (dollar, euro, sterling and yen) currencies over the financial crisis. The dollar's equivalent index has shed only about a third of the pound's losses since mid-2007, while the euro's has jumped about 10% and the yen's approximately 20% over that period.

Is powerful Mandy talking up the euro?

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When Prime Minister Gordon Brown reshuffled his cabinet last week, fending off a challenge to his authority, a significant outcome was the creation of one of the most powerful ministerial jobs Britain has seen in years.

 

Peter Mandelson, a former European commissioner who has twice served in British governments in the past and twice been forced to resign, was reconfirmed as secretary of state for business, but also given greatly expanded authorities that make him a powerful if unofficial number two to Brown.

Two sides to sterling’s tumble

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pound-coins-toby-melville.jpgSterling has extended its losses against the dollar to its lowest level in more than two years , trading just above $1.85. As recently as mid-July one pound would buy two dollars and there were plenty of tales of holidaymakers rushing to the United States to make the most of it.

It’s not hard to see why sterling is under pressure, even though inflation is currently well above target and the highest in years: rising unemployment, falling house prices, large trade and budget deficits, and slowing economic growth.

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