Newspaper article The Evening Standard (London, England)

Why Sterling's Exchange Rate Fall Is a Key Pointer

Newspaper article The Evening Standard (London, England)

Why Sterling's Exchange Rate Fall Is a Key Pointer

Article excerpt


MANY things were predicted to happen with the launch of the euro notes and currency but that sterling would have its worst-ever day against the single currency was not one of them. That, however, is what happened.

The euro was strong against the dollar too but the gain was not as marked and this indicates two things. First, there is a sense of relief that the launch of the single currency has gone very smoothly.

In fickle markets it adds to the currency's credibility. Second, the smooth launch was seen by the markets as making it more likely that Britain will join the euro - by increasing pressure on the Prime Minister to campaign aggressively for membership.

But it is also recognised that the current exchange rate is too high for us to enter and still hope to be competitive with other eurozone countries. So the unspoken requirement for membership is that the exchange rate falls first. The beginnings of this could be seen yesterday.

How long it lasts is anyone's guess, of course. The ideal scenario from the Government's perspective would be for sterling to continue to slide because it would bring muchneeded comfort to manufacturing and agriculture while probably not causing major inflationary problems elsewhere. The more positive the Government is about the euro, the more likely it is sterling will be weak. That is why I think a drop in the exchange rate is likely to be the most significant market move of the first quarter of this year.

Unkind on charity

THE effect of market volatility on pension funds is much more widely appreciated today than it was even a few months ago. The parallel and similarly damaging effect on charities has received less attention.

The 2002 Survey of Charitable Funds, published this week, seeks to correct that. It tests opinion from charities with assets that collectively hold about [pound]17 billion, which in turn amounts to about a third of the total in the hands of the larger charities with assets of more than [pound]1 million. …

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