Tuesday, November 18, 2008

Foreign Exchange Fluctuations

Recently I've been trying to keep track of and understand the massive changes in foreign exchange rates between the US Dollar, Pound Sterling and the Euro. The relatives changes in currency since the beginning of the year (2008) are quite seriously amazing. Using the website ForexNews.com the following YTD changes can be seen:

£ Sterling to US $ - currently 1.4967, down 23.59%

Euro to US $ - currently 1.2624, down 4.32%

It wasn't so long ago the £/$ rate was permanently stuck at 2.0. Past Christmas holidays provided the scenes of hordes of shoppers flying to New York to shop. Not this year, I would think. Perhaps the pound was artificially too high then. I can certainly remember what little is left of the UK manufacturing sector complaining about lack of competitiveness in the export market. So at least they should be happier now, assuming they can obtain investment funding from the banks. Tourism should also benefit from the change in exchange rates, but that assumes that tourists can afford to spend money during a recession.

The contrast between the Euro and the Dollar is a lot less significant, suggesting, possibly, that something here has yet to give. If we assume that the dollar is too large a currency in the hearts and minds of the rest of the world, then my guess is that the Euro is heading for a fall as well. Eventually, it is probable that things will even out, I suppose, with the status quo (whatever that is) winning out in the end.

That assumes we continue to have a free market economy. But here I am not so sure. There are dark days ahead, I think, when it comes to how the current financial collapse will be managed and who will be doing the managing. Very, very few of the world's leaders apparently saw this coming, yet it is the same people who claim they will get us out of the mess that they, basically, allowed to happen.

At this point I have to admit that conspiracy theories start to look very attractive! Fellow global warming heretic Professor Philip Stott has an engaging piece on his blog that is highly recommended. The comparisons between the present political situation and George Orwell's 1984 are much more than coincidental.