What sterling crash?

The Tories are trying to blame sterling’s fall on Gordon Brown. And they’re failing. Fraser Nelson writes:

The sterling crash has now begun in earnest. The pound has today (today!) fallen 9% against the Yen and is off 4% against the dollar to a lowly $1.56 with forecasts of $1.40 or lower next year. Against any other currency you may mention, it’s now plunging.

Don’t mention the Aussie dollar: the pound’s near a four-year high against that. And it’s only 1.6% below its six-month average against the euro. 
The fact is, sterling is largely a sideshow now. Although its trade-weighted index has fallen 5% in the last month, the majority of its decline happened over the winter. Sterling weakness is an old story.
Instead, the story is about the dollar and yen. It’s these that are soaring, not sterling that’s crashing. This is probably because a scramble for cash is forcing investors - perhaps especially hedge funds - to close positions. And as many were short of dollars and yen, so these have risen.
And this is just drivel:

There is a serious prospect that Brown will try and inflate his way out of this debt problem, a prospect which terrifies currency dealers.

If this were a serious prospect, gilts would have sold off along with sterling - inflation is terrible for government bonds. But they haven’t. Indeed, spreads between 10 year gilts and their US equivalents are close to their lows for this year, whilst spreads over 10 year Bunds are an insignificant 0.13 percentage points above their post-2000 average.
Far from being a sign of trouble, sterling’s weakness is actually a help.  In making exports and import-substitutes cheaper, it will - with a long lag - help boost profits and economic activity and relieve the recession.
Fraser continues:

I have heard serious people talking about parity with the dollar.

If he knew anything about FX markets, he’d one that the one parity that does exist is the one between the value of an exchange rate forecast and that of a wet fart.

Comments

[jameshigham]

Sadly that's true - it is a sideshow but as each currency is falling against the other, there is still relative parity.

[Nick Cohen]

Chris, What do you make of the similar claims that we are already up to our neck in public debt?

[chris]

Nick - the claim is drivel:
1. OECD data show that the UK's net financial liabilities as a % of GDP are the second lowest in the G7.
2. The only judge of government debt that matters (other than future generations!) is the gilt market - the guys who lend the money. And these are relaxed. Long-term index-linked yields are only just over 1%.

[jameshigham]

That Australian news is not good.

[luke]

I fear Fraser had a nice reputation building until this post and thread!

[Johnny Coates]

I like this POV: Instead, the story is about the dollar and yen. It’s these that are soaring, not sterling that’s crashing.
True, positive ideas like this help a lot far more than we could imagine.

[Fraser Nelson]

Chris, you ask "what sterling crash?" and run a graph showing the sterling trade weighted index plunging to a 12-year low! I wish I'd had that graph, because it does rather make my case. And as for the 10-year gilt-bund spread, I suspect you will see it rising well above 100bp in coming months.

[Wolfie]

A good argument and I'm in agreement but I'm sceptical about the OECD claim that the UK is light on public debt.