Brexit: Why Sterling Will Keep Sagging

Sterling will keep sagging because Brexit's path will be stony. 


  Minutes from last month's US Federal Reserve meeting showed Fed members close to raising rates for the first time since last December. In the end they held off because stagnating wage increases were holding the inflation rate below its 2% target.

1.  Central bank policies are not working at reviving the economy.

2.  Theoretically, low interest rates should revive consumption (no opportunity cost to spending one’s money) AND investment (low cost of borrowing).,

3.  But practically, this is not happening: precisely because rates are so low and precisely because the population is ageing, pensioners are having go save MORE and thus spend less.

4.  Besides, central banks cannot do the work of those politicians, who refuse to enact structural reforms to get economies going e.g. in labour markets, competition and education.


Following a 3-day visit to Macau, Premier Li Keqiang has confirmed that Beijing will support the former Portuguese colony in becoming an off-shore clearing hub for yuan transactions between Portuguese speaking countries.

Meanwhile the PBOC continues to guide the yuan lower. The third consecutive day of weakening has pushed the mid-point of the currency’s trading band to a 6-year low.

 1.  The PBoC wants the yuan lower in order to “boost exports”, although in my most recent book on Trade Myths I argue that the linkage between exchange rates and trade flows does not exist.

2.  Meanwhile, the RMB keeps sagging because of capital flight.

3.  Thus, the PBoC has to go with the flow and allow it to fall. If it tried to halt this it would have to withdraw the supply of RMB, which would equate to monetary tightening.But against the backdrop of slower growth, the PBoC must try to keep China’s Economic Time® from deteriorating further…

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The above notes formed part of a RTHK radio show, you can listen to the blog  more

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