Comment: Behind the sterling and dollar upstarts
Tuesday 08 April 1997
Have things changed so much that we can not expect to hear from now on the word "pound" or "dollar" unqualified by the adjective "strong"? It is certainly true that the Anglo-Saxon economies are buoyant in ways the Germans and Japanese can only dream of at the moment. Even if both of these pick up as expected during the course of 1997, they are not going to catch up to the US or UK. This sterling rally could go much further.
Yet it is too soon to say that the tide of history has turned. The economic fundamentals suggest the opposite, and however long it takes them, the fundamentals tend to win out in the end. Take trade. America's trade is deep in the red already; Britain's soon could be if the unfavourable trends continue, and if the moans of pain from exporters turn out to be true. The underlying trade picture will tend to reverse the pattern of currency appreciation eventually - even if American nerves do not fray sooner, leading the US to bully Japan into efforts to prop up the yen.
The other consideration for future nominal exchange rate levels will be inflation prospects. Here again, the very long-run picture favours the traditional strong currencies rather than the dollar and sterling upstarts. The differences do not look big in a low-inflation world, but the US and UK have higher inflation rates than the other big industrial countries, and more inflationary pressure in the pipeline.
Predicting the direction is one thing, the timing entirely another. Past experience suggests it can take years, as in the early 1980s, for those fundamentals to reassert themselves.
- 1 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 2 Dog thinks owner is drowning in lake, dives in and tries to pull him out
- 4 Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
Asteroid narrowly scrapes past Earth: how to watch the closest space rock for decades as it flies by
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Greece elections: Greek PM Alexis Tsipras takes aim at 'neo-liberal' Europe as country gears up for prolonged austerity battle
Pornhub star Mia Khalifa receives death threats after being ranked the site's top adult actress
Prince Philip set to be knighted by Australia: Celebrate by reading his greatest gaffes
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
30,000 reasons why the rhetoric on immigrants claiming benefits can stop now
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...