Record lows versus interest rates

Euros and dollars

TEXT OF INTERVIEW

Scott Jagow: Pretty soon, the dollar is gonna need a hospital bed and an IV. It's getting weaker by the day. Today, it hit another record low against the euro, and a 26-year low against the British pound. Investors are selling dollars because they expect the Federal Reserve to cut its key interest rate today.

Let's get a European perspective on this from our man in London, Stephen Beard. First of all, Stephen, what's the relationship between interest rates and the currencies?

Stephen Beard: As interest rates come down, of course, currency becomes less attractive to international investors. They earn less money holding that currency, and therefore they tend to pull out and put it into another currency. That is boosting, in particular, the British pound. Because while U.S. interest rates are 4.75 percent and falling, in the U.K., they are 5.75, and very likely to stay at that level into the new year.

Jagow: Are people in Britain happy with this situation, with a strong pound and a weak dollar?

Beard: Anybody planning a visit to the U.S. is certainly happy. It's good for British companies importing products from the U.S., and buying raw materials on the world market -- generally denominates in U.S. dollars and therefore become cheaper for purchases with British pounds. But of course, it is bad for British exporters.

Jagow: Stephen, how long do you think this is going to go on, the weakening dollar and the strong pound? Are we talking 3 to 1, 4 to 1 -- 5 to 1?

Beard: Well, how weak the dollar could get is anyone's guess. But there are some analysts here saying that the British economy is beset by many of the same problems as the U.S. economy, such as a big trade deficit, inflated house prices. And they reckon it won't be long before these begin to take their toll on the British pound. It could fall back below $2 early next year.

Jagow: Good, because you know, I'd love to come visit, but I can't afford it, Stephen.

Beard: Well, maybe next year.

Jagow: All right. Stephen Beard, our correspondent in London. Thanks.

Beard: OK, Scott.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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