Pounding the dollar

Stephen Beard Apr 17, 2007
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Pounding the dollar

Stephen Beard Apr 17, 2007
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TEXT OF INTERVIEW

SCOTT JAGOW: The British pound hit the magic $2 mark today. That means it takes $2 to equal one pound. The exchange rate hasn’t been this high since 1992. Stephen Beard joins us from London. Stephen, what’s moving the currency?

STEPHEN BEARD: Part of this is dollar weakness. I mean there’s expectation that interest rates could be cut in the U.S. There’s concern about problems in the subprime mortgage market in the U.S. and worries about the trade deficit. So the dollar is weak, but the pound is also much stronger in its own right and there’s a number of factors at work which perhaps don’t augur that well for the British economy.

JAGOW: Well tell us what they are.

BEARD: Well the prospect of higher interest rates here. We’ve got producer price inflation on the rise, house prices are still absolutely rampant, I mean 12 percent increase every year and there’s been a lot of speculative money flooding in. When you get high interest rates you get people borrowing in low-yielding currencies and piling into a high-interest rate currency like the pound. It does look good on paper, but this kind of currency strength can go into reverse pretty quick and come down with quite a bump when the interest rate cycle turns.

JAGOW: But surely Stephen there have to be some benefits to having a strong currency right?

BEARD: Yeah I mean undoubtedly there are benefits. It’s very good news for British importers. Expect another wave of British shoppers coming to New York to go on a shopping spree. It’s gonna make their purchases cheaper. It’s good for industry too since many of the world’s raw materials like oil, metals and other commodities are in dollars. But of course it’s bad news for British exporters. It makes their products more expensive abroad.

JAGOW: As far as shoppers go, you know, we’re certainly not going to go over there.

BEARD: That’s the other problem of course: The British tourist trade has suffered a lot in recent years. I mean it’s incredible that people still do come to the U.K. given how incredibly expensive it is.

JAGOW: Alright Stephen thank you.

BEARD: OK Scott.

JAGOW: Stephen Beard in London.

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