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British Exporters Face Uncertainty Amid ECB Row

Strategic Insights

— 1 min read

The political infighting over the European Central Bank (ECB) has dented the credibility of the single currency project, leading to increased uncertainty about the future of the euro and the "safe-haven status" of the pound and the dollar. Analysts believe that a stronger pound, which has already risen by more than three pfennigs to DM2.96, will be bad news for hard-pressed British exporters. The row has also sparked speculation that the Bundesbank could raise German interest rates this summer, further complicating the situation for exporters.

Key Takeaways:

  • The ECB row has undermined the credibility of the single currency project, increasing uncertainty about the future of the euro.
  • A stronger pound, which has already risen to DM2.96, will be bad news for British exporters.
  • The Bundesbank's opposition to the ECB compromise could lead to a rise in German interest rates, further strengthening the pound.
  • Economists are divided on whether support for sterling will be short-lived, with some expecting the pound to climb back above the DM3 level.
  • The weekend summit's decision to use the central ERM exchange parities as the rates at which the 11 euro members will lock their currencies next year could have a bigger impact on non-euro members.
  • Analysts predict that sterling must depreciate to a sustainable rate over the next 1.5 years, rather than 3.5 years, implying a faster depreciation.
  • The six members of the ECB board, responsible for setting monetary policy, are Wim Duisenberg, Otmar Issing, Christian Noyer, Tommaso Padoa-Schioppa, Sirkka Hamalainen, and Eugenio Domingo Solans.

Statistics:

  • The pound has risen by more than three pfennigs to DM2.96.
  • Economists predict German interest rates will rise to 4.5% by the end of the year.
  • The 11 euro members will lock their currencies next year at the central ERM exchange parities.
  • Sterling must depreciate to a sustainable rate over the next 1.5 years.

Sources:

  • "STRUGGLING British exporters face the prospect of a stronger pound in the wake of the weekend row over who should head the new European Central Bank." (Source: Not specified)
  • Julian Jessop, chief European economist at Nikko Europe (Source: European Central Bank)
  • Alison Cottrell at Paine Webber (Source: Paine Webber)
  • Avinash Persaud at J P Morgan (Source: J P Morgan)

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