Pound And Euro Fall Again, Dollar Strength Hits EM

Investors were greeted by a sea of red across global equities markets Monday, as U.S. and European stocks followed a slump in Asia at the start of a crunch week for global trade. Political risks sent the dollar higher with Treasuries, roiling emerging markets. All major U.S. equity gauges were lower to start the second half of the year, led by the Nasdaq 100 Index, which struggled as semiconductor stocks fell. Energy shares also were weak, weighing on the S&P 500 Index and Dow Jones Industrial Average. On Friday, the S&P 500 capped the second quarter with its third straight monthly gain. Britain’s pound declined in yet another big week for Brexit, and the euro came under pressure as tensions deepened in the German coalition. Miners were the biggest losers in Europe as metals slid, and West Texas oil fell below $74 a barrel after U.S. President Donald Trump called for increased production.

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It's nothing compared with 2017 pound vs. dollar.

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Recently, I read a Tweet from a Brexit fan who said “The pound is overvalued, on the basis has not reached parity with the Euro & Dollar”.  The ignorance is amazing, in part of their camp.

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Brexit is like the ship springing a leak and PM, Theresa May is like the captain drilling another hole to let the water out...

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This one could be famous: “Two bananas for a pound and dollar, three bananas for a euro.” Reciprocity

 

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Yet the devaluing of the UK Pound makes their exports more attractive to offshore buyers.  Right now the UK enjoys access to Europe's markets; you have to anticipate that free market access is going to get derailed. Then what?  The UK sells technical goods to the US and Canada, although the Canadian customers now have their own devalued currency issues.  I recall one buying some tooling from a UK tool builder, and the exchange rate was quite favorable, so that tooling was cheaper than if purchased in the USA.  If the exchange rate is to a valued or pricier pound Sterling, then that puts the brakes on those types of sales.

Also keep in mind that a higher-priced currency hits the tourist market, and encourages Brits to vacation abroad, draining currency reserves.  Brits have historically vacationed in Spain and the offshore islands; there are ferryboat services with giant ferries running from multiple ports on the South of England to ports on the North Spanish coast.  You roll your car on, go to the bar, and let the captain do the driving. A nice way to go on vacation (especially given high European gas prices).  All things considered, dropping the value of the pound against the Euro helps British industry sell, helps US tourists come to the UK to spend money, and impoverishes British tourists in Spain with a hidden tax,  Better or worse?  You decide. 

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On 7/2/2018 at 8:30 PM, Jan van Eck said:

Better or worse?  You decide. 

I'll take industry every time; it wins wars. 

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