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Wednesday, September 7, 2011

UK Pound Sterling against Singapore Dollar






Period of extreme volatility in the forex markets too. Pound Sterling and Euro have declined precipitously against the Singapore Dollar as I write this. Pound to 1.929 and Euro to 1.69. The former is a historical low (yet again), the latter is not too far away from it's historical low at 1.55-ish.

Swiss National Bank has also publicly stated it will intervene in the forex markets to keep EUR/CHF at a maximum of 1.20, which led to EUR/CHF to drop to... you guessed it... 1.20. It's also dropped to 1.40 against the Singapore Dollar.

Interestingly enough, the US dollar has risen against the Singapore dollar. Now stands at 1.211.

Long term prognosis for these beleaguered western currencies? Heal, relief or comfort?  I have no idea, but it doesn't look too good. As far as I know, currency exchange rates in the long term are very based on macroeconomics.

Let me try my hand at this.. In a fictional world with two countries only, A and B:

1.) If A's inflation rate is 4% whilst B's is 6%, ceteris paribus, A's currency will strengthen against B's.

2.) Again, if country A's money supply rises slower than B's, ceteris paribus, A's currency will rise against B's. This is because B has essentially more numbers chasing after the same amount of goods.

3.) If country A's interest rates are higher vis a vis country B's, ceteris paribus, A's currency will strengthen against B's.

4.) If country A's current account deficit is bigger vis a vis country B's, ceteris paribus, A's currency will decline against B's. This is because A owes B more money than B owes A. Hence, A has to supply the market with more A$ to buy the limited supply of B$. Supply of A$ increases, Demand for B$ increases, B$ appreciates.

5.) If country A's government is constantly facing unrest and hostility whilst B's government is keeping the peace, B's currency will rise vis a vis A's.

6.) If country A's public debt is bigger as compared to B's, A's currency will decline. This is because a large debt encourages inflation, which brings us back to point 1.

7.) Market Sentiments (duh)

8.) Expected Central Bank actions w.r.t. interest rates, money supply easing etc

Look at Britain vis a vis Singapore. Point 2, 4, 7 and 8 I believe are to blame for this decline.




The sun never sets on the British Empire? Hmm....

But you know what? This is GREAT! This leads to lower cost of education for me, and a cheaper European holiday for my fellow countrymen. Majulah Singapura!

5 comments:

  1. Hello I (now that's a cool nick! Can be "I", or there can be only 1 - power!)

    Now you know how I got started with currencies hedging and trading :)

    Nothing clarifies more than practical experience of having to remit money back to Singapore every month and trying to minimise the damage. LOL!

    ReplyDelete
  2. Hi SMOL,

    I assume you mean you hedge your Euros, which I presume to mean you short euros and long Singapore dollar?

    How do you do it from Greece? Haha. Just curious if you don't mind me. :)

    ReplyDelete
  3. I have a POEMS forex account.

    So can trade on-line. I use the SPOT Forex market as opposed to the Forex futures market.

    It's about the same to me. Some prefer futures as it's "regulated" through an exchange. SPOT is more over-the-counter (OTC).

    POEMS has also Forexinvest where you can trade currencies with no margin. Can use it like any other on-line money-changers. Check it out!

    Yup, I short Euro and buy SGD. The best thing is that my learning in Forex can be applied to analysing those stocks that have high currency exposure ;)

    ReplyDelete
  4. A round up of the latest Pound Singapore Dollar forecast news items from the Currency ... POUND STERLING No UK data releases of note meant a day in the ... STORY LINK Pound Sterling makes gains against Euro and Dollar.

    ReplyDelete
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    ReplyDelete