US dollar exchange rate forecast - more gloom

Not really a “BUMP”, I just have an awful gut feeling that we should be sorting out an everyman for himself scenario.
 
Just been reading more of it. The long term forecast is $1.17:£1 by the start of 2010.:eek:

Of course, the further you forecast, the more inaccurate you become but although good news for exporters, as a computer buyer I am not looking forward to have to pay almost the same dollar price in pounds - of course, with some computer stuff that has always been the case anyway ;)

Exchange Rates
Negative investor sentiment continues to act as a drag on sterling. The pound failed to
recover from the multi-year lows against the currencies of the UK’s main trading partners in
November, remaining almost unchanged at $1.54 and £0.85 against the dollar and the euro,
respectively. Sterling’s weakness reflects investor’s concerns over robustness of the overall
UK economy. For one, the UK private sector is highly indebted, both historically and by
international standards, making it more vulnerable to the tougher credit environment. The
financial sector is also structurally more important than in other economies, with the sector
accounting for half of the 1.6mn new jobs created since 2002 – even though financial
services only represent c.7% of the whole economy. Until the outlook becomes clearer,
sterling is poised to stay weak.
The US economy is also heading into a serious downturn, but the dollar appears to be
benefiting from its reserve currency status. In times of unprecedented risk aversion,
investors long for currencies that serve as a store of value. And of all currencies, the dollar
seems to fit be bill most closely. Due to an increasingly uncertain global outlook, investors
continue to sell assets held in many emerging markets, parking the proceeds in dollars. This
process lends significant support to the greenback. The euro, on the other hand, does not
appear to have benefited to the same extent from such safe haven flows. This suggests that
the single currency has yet to displace the dollar as the world’s leading reserve currency.
Click to expand...
 
Good for me. I have a load of USD that were monopoly money until recently.
Lived in the states for a year and moved about 7K USD over to buy cars extra. This was at 1£ = 1.5USD. Left a year later with 10K in the bank and an exchange rate of 1£ = 2$.

I might even be able to make a profit after waiting all these years.
 
More doom and gloom forecasts and analysis:

New public enemy number one: deflation
Although risks remain small, deflation can no longer be ruled out. Deflation refers to a sustained fall in the general price level
across the economy – not to be confused with the cyclical moderation in inflationary pressures now underway. Testifying before the
Treasury Select Committee last week, Mervyn King, Governor of the Bank of England, said that the UK would see “deflation come to
pass” if problems in the financial sector intensified. This is a significant change. As recently as September, Mr King wrote that “inflation
is likely to remain markedly above the target until well into 2009.”
This reflects the seismic shift in inflation expectations in just three months (chart 1), driven predominantly by two factors. First,
commodity prices have fallen even more quickly than they rose in the start of the year – a barrel of oil now costs $45, down 70% in just
five months (chart 2). Second, and equally importantly, the negative feedback loop from the crisis in financial markets to the wider
economy has hit with a vengeance. Demand is weakening rapidly, keeping a cap on firms’ desire to raise prices. At the same time,
unemployment is increasing, which will tame workers’ efforts to push for higher wages.
Inflation can be bad, but deflation is much worse
Deflation can turn a bad situation into something more serious. A sustained decrease in the general price level depresses activity
in two ways. Most obviously, it makes people postpone big-ticket purchases. After all, why would anyone shop today if they think that
prices for goods and services will be lower tomorrow? While not buying makes sense from an individual’s perspective, the aggregate
effect is to choke demand, prompting firms to lay off staff. In aggregate households lose more from higher unemployment than they
gain from lower prices – this is what the renowned economist John Maynard Keynes called the ‘paradox of thrift’.
The second negative effect is that it increases the burden of outstanding debt. The amount of money that people owe, in real
terms, increases over time when prices fall. Using a hypothetical example, if people borrow £100 for one year at zero interest, but
prices drop by 50%, then the real cost of debt has doubled (as the £100 can now buy twice as many goods and services as a year
earlier). Put differently, when prices and wages fall, it becomes tougher to service a given amount of nominal debt. With the real cost of
debt increasing and repayments becoming more difficult, more loans go bad, dealing yet another blow to the financial system.
The Monetary Policy Committee (MPC) will do whatever it takes
Official interest rates could reach zero before they succeed in reflating the economy. Lower policy rates aren’t translating
smoothly into lower real borrowing costs for households and firms (chart 3). This means that the Base Rate has to fall by more than
under more normal circumstances. Moreover, the widespread weakness in the wider economy puts further downward pressure on
policy rates. These two factors together could drive the Base Rate towards zero, at which point conventional rate cuts have gone as far
as they can.
But that doesn’t mean policymakers are powerless. When official interest rates approach zero, the Bank of England is likely to start
using more creative measures to spur activity. One approach, already underway in the US, is to buy outstanding government and
private sector debt using freshly printed money, explicitly targeting borrowing costs across the economy. While almost certain to avert
deflation, running the printing press is not a one way bet – if sustained for too long, it could lead to galloping inflation further out. But
faced with the mavity of the ‘deflation scenario’, inflation worries will likely have to wait for another day.
Click to expand...
 
clv101 said:
Indeed. Welcome to the collapse of the British economy.

Anyone read Jeremy Clarkson's column in the Sunday Times over the weekend?
http://www.timesonline.co.uk/tol/driving/jeremy_clarkson/article5292547.ece
Click to expand...

Yup, the following quote is quite prophetic:

"I think mainly this is because the government is not telling us the truth. It’s painting Gordon Brown as a global economic messiah and fiddling about with Vat, pretending that the coming recession will be bad. But that it can deal with it.

I don’t think it can. I have spoken to a couple of pretty senior bankers in the past couple of weeks and their story is rather different. They don’t refer to the looming problems as being like 1992 or even 1929. They talk about a total financial meltdown. They talk about the End of Days."
 
Now this I don't understand about deflation - it's supposed to be bad because people hold off buying things because it'll be cheaper in time, so demand drops, which is a bad thing because then companies go out of business.

But looking at how things progress, it seems most 'desirable' objects actually become cheaper by way of progress meaning you get 'more for your money' by waiting anyway, so there is deflation acting there anyway and clearly didn't have much of an impact.

With essentials, by their very nature they are essential and so you have to buy them regardless of whether they might be cheaper or more expensive in the future.

So without sounding stupid - what's the big deal?
 
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