Monday, November 17, 2008

Fall of Sterling Pound - does it matter?

alistair_darling-sterling-poundAlistair Darling is not exactly my favourite person right now. It has absolutely nothing to do with the fact that his eyebrows is of a different colour as compared to his boyish mop of hair. Till now, I've not figured out whether he dyed his hair or his eyebrow.

However, it has everthing to do with the dramatic fall in value of the sterling pound has fallen in the past few months. When I first came to London some time in mid 2007, £1 could have gotten me S$3. 18 months later, the same pound can get me barely S$2.2 - a whopping 26% fall against the Singapore dollar.

Now, while I understand that it's not Chancellor Darling's fault that the banks collapsed and credit dries up. Heck, it may not be even Gordan Brown's fault although he did preside over the Treasury for nearly a decade under Tony Blair's administration. But witnessing a quarter of my salary go up in smoke is not exactly a pleasant experience.

Over the weekend, Twinkletoe (I can't stand that name so she'll be known as TwT from now on) and I were discussing about the fall in sterling pound while we were having some tea at Liberty and we were able to find some common ground on this issue.

2 Reasons why Fall in Sterling is beneficial:

  1. The decrease in Sterling's value will increase in exports in UK's goods, boost employment figures and would probably aid the UK's economy in a long run.
  2. If you're spending your pounds in the UK, it wouldn't matter anyway. That would encourage Britons to buy local produce.
3 Reasons why it hurts:
  1. Foreign employees (yours truely included) who have to remit money back home every now will feel the pinch.
  2. Those using London as a launching pad to travel to Europe will have to contend with travelling to Wales and Scotland instead with the Sterling almost one on one with the Euro.
  3. Fans of Louis Vuitton, Prada or even LongChamp will have to fork out more to satisfy their craving for imported branded merchandise.
What about you? Are you affected by large swings in your currency over the last year?

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14 comments:

Martin Miller-Yianni said...

Absolutely.. I have a English bank account in Sterling but live in Bulgaria. The exchange deal me around 30% less than I got last year. It's criminal!

Fëanor said...

I'm afraid there goes my vast international property empire: the Chateau in the Loire Valley, the Penthouse in Manhattan, the Colonial Bungalow in Singapore, the string of hotels I ran (in my head) around the beaches of South America. As you astutely aver, any trips out of London will probably not go farther than, say, Windsor. :-)

lina said...

interesting observation the hair and eyebrow.

Couldn't care less about the sterling pound since I have no transaction made using the currency.

What I want to know is which one did he dyed? Hair or eyebrows? :D

Melinda said...

I've got it the other way around: I'm still getting my student funding in euros, while having to live and pay everything here in the UK. My rent has technically dropped in the past 2 years.

Dutchie said...

Heard from a friend that his savings in Sg has fallen by S$ 92,000 against 550,000 euro ! It's now a question of cashing in at the right time but it will take a while b4 it recovers I'm sure.

The interest rate for Euro a/c in Sg has dropped from 5,4% to 3,88% within a space of 1 month *sob* Some banks here offers 5% for a 1yr fixed a/c, so there's consolation, fortunately.

For the most of us, de-valuation is felt on a daily basis - things seemed to be more expensive. I shudder to think what our energy bill will be like when the statement comes at the end of Dec !

SheR. said...

Hee hee hee..
I have changed all my GBP before the beginning of this year and advised many to do so. I told them GBP will depreciate greatly by end of this year.

Did I send you the advice? :P

Hazel Lew said...

hi, this is PURELYU for FX interest purposes - could you please kindly show me HOW (the calculations) do you get the 26% drop in SGD vs GBP? Many thks!

Hazel

Mike said...

I know the feeling.

My GBP buys around 20% less Baht at the moment. So a big thank you to Mr Darling and his speech a few weeks back.

Also the fact that the Baht follows the USD really irks since the US are at least partly responsible for the way things are now.

C K said...

@martin miller-yianni,
I was actually holding back exchanging my sterling pounds to Singapore dollar with the thought that it'll rebound. Bad mistake.

Well, I supposed you left your sterling untouched then? :)


@feanor,
For someone who has just returned from the sunny beaches of Goa, Windsor might be a refreshing destination for you. :)


I'm surprised that you didn't go on to list your equity portfolio. But looking at how things are, you might as well not.


@lina,
I have absolutely no idea. Perhaps it's natural? What about the exchange rate between yen and ringget? Is there any large fluctuation compared to a couple of months back?


@melinda,
Lucky you. Well, someone must gain from all these, no? Ultimately, it's a zero sum game.

Anyway, thanks for stopping by and I must say that you got a fabulous site there. Just curious, did you list your phone number under your photo? lol, you must have received quite a number of calls.


@dutchie,
Ouch. But then again, it's mostly paper loss for your friend isn't it? Like what you've pointed out, it's just a matter of time before the situation reverse.

Just yesterday, there were news about inflation going down. The Govt is now worried about deflation. Can you believe it? It's really a no-win situation isn't it?

Just wondering, what's your average energy bill over in NL?


@sher.
You have to rub it in, don't you?

Well, that just gives you an incentive to visit London before the pound rebounds.


@hazel,
Right, I made use of complex calculations with models based on historical Bloomberg data feed coupled with enhancement from the recent default information.

In short, I checked up the exchange rate on Google. Hope that helps. :)


@mike,
Ah... that 'sinking' feeling. That is something that we have to contend with if we have obligations spread over more than one currency. Well, hang on tight 'cause I think it's going down further.

SheR. said...

Hey CK.. Probably I might see you at the Singapore Day??

C K said...

@Sher,

Are you coming by then? The funny thing is that I've never attended 'Singapore Day' over here in London. Don't ask me why, it just didn't occur to me.

I don't suppose there's one in Croatia is there?

Dutchie said...

CK, last year we paid Euro 250 for gas n Euro 320 for electrics. That was b4 the surge in oil prices. We had letters from the supplier that the prices will be up 30%. At the same time, they were pushing us to sign on for a fixed 2-5yrs at a higher rate than the current one as a security against even higher oil prices. They didnt expect the financial meltdown n the effects thereof. Glad we didnt sign on !

Saw on BBC News that a semi detached home could expect to pay over GBP 2000 for their energy cost. That is very high. We wondered if the Brits r less inclined to save on energy ? We r constantly reminded here to conserve energy.

Some homes here hv a boiler for hot water or they hv the central heating on all day. That could add up to a huge bill. What r ur bills like ?

Fëanor said...

CK: I've decided to liquidate my international property empire and invest in yurts in Mongolia instead. They are the very latest thing. Equity? Pfffft.

Anonymous said...

it's time to get the euro! www.euro4uk.com