Theere are good reasons why sterling has taken such a battering – and why the dollar is in the ascendant
Thinking about booking a holiday abroad this summer? Well, get ready for a nasty surprise, because your money is not going to stretch as far as it did in 2012. Sterling has been the seven-stone weakling of foreign exchanges since the turn of the year. It dropped to a two-and-a-half-year low against the dollar and touched a 16-month low against the euro last week after the Bank of England revealed that three members of its monetary policy committee – including governor Sir Mervyn King – had voted for extra stimulus to boost the economy. Meanwhile, some of its weakness reflected mounting expectations of an imminent loss of the UK's AAA rating – which has now occurred. Apparently, investors would rather hold a currency used by Greece (riots on the streets), Spain (55% youth unemployment) and Italy (threatened by the possible return of Silvio Berlusconi) than the one circulating in the UK. That's not a healthy sign.
Nor is there anything to suggest that the hedge funds – which have turned negative in their attitude towards the pound in recent weeks – are going to become bullish any time soon. There are, after all, only two reasons to hold a currency: an attractive yield or the prospect of strong growth. Sterling has neither attribute.
Interest rates have been at 0.5% for the past four years, a record never previously approached in the Bank of England's 319-year history, with not the remotest possibility of their being raised. That's despite the fact that inflation is expected to remain above its 2% target for at least a further two years, a total of six in all.
Far from thinking about tighter monetary policy, the Bank is thinking about a further easing. Its monetary policy committee discussed cutting the interest rate at its latest meeting earlier this month and the City is expecting a further dollop of electronic money creation through the quantitative easing programme within months.
If the markets believed that this stimulus – unprecedented in both scale and duration – had transformed the growth prospects for the UK economy, they might think differently about whether the pound is such an obvious sell. But they don't. The economy has drifted sideways for the past two years and even the most upbeat economist is expecting little more than 1% growth in 2013.
In part that's because the Bank's blatant attempts to drive down the level of the pound add to the economy's headwinds by making imports dearer. Wages are already going up more slowly than prices, and raising the cost of fuel, food, clothes and consumer goods brought into the UK simply makes that gap wider.
Some analysts believe that the aggressive sell-off of sterling since the turn of the year has been overdone. The eurozone is still, they argue, an accident waiting to happen and could flare up again at any time. An inconclusive result in this weekend's Italian election could easily be the catalyst for a fresh period of tension, while the performance of the eurozone economy has been even more dire than that of Britain. All that is true, and suggests that further big falls in the pound against the euro are less likely than continued weakness against other currencies, especially the dollar.
There is both a yield and a growth case for holding the greenback. The Federal Reserve is debating whether to scale back its QE operation because there are signs that the world's biggest economy may at last be recovering strongly. Manufacturing is doing well, helped by cheap energy, and activity is returning to the real estate market. So if you are heading for the US this summer and haven't bought your dollars yet, that's a pity. It's probably already too late.
Lancashire exposes UK's broadband failings
The green pastures and ancient villages of Lancashire's Lune Valley have long been a refuge for walkers. More recently, they have become home to some of the country's fastest internet connections. Over the past few months, 300 properties in this quiet corner of England have plugged into fibre-optic cables offering download speeds of 1,000 megabits per second or, if you want that in English, extremely fast.
This is not a BT service, or any other that you've heard of. Uncertain whether proper broadband would ever reach them, the villagers formed a collective called B4RN, took up shovels and dug their own cable trenches.
It is a novel solution to a familiar problem. Around 20% of those who live in rural England and Wales have achingly slow, unreliable internet connections with no prospect of improvement. For many, the best option – DIY solutions aside – may be fourth-generation (4G) mobile networks. Spectrum auctioned last week is expected to deliver mobile connections as fast as the average home broadband line. Eventually.
Five companies were awarded licences. The deal won by O2 comes with an obligation to build enough masts to get a signal to 98% of premises, but not until 31 December 2017 – a lifetime in internet years.
Meanwhile, the deadline for a government-funded project to speed up rural broadband has slippedfrom 2013 to 2015, while its target speeds fall far short of the 30Mbps the European commission wants in every home and business by 2020. And David Cameron's insistence on a cut in the European budget has made things worse: a €9bn fund that would have provided long-term loans, not grants, to local networks was axed.
Europe was quicker than the US to deploy mobile networks, and companies such as Vodafone used that advantage to thrive. Today, we have nothing to compare with Apple or Samsung in the technology market we once led. The Lune Valley is a long way from Silicon Valley, but faster connections can only narrow that gap.
Near misses by Marius may have saved his bacon
So it's farewell then to dear old Marius Kloppers, the BHP Billiton boss, who we discovered last week is to retire. He leaves the post in possession of a decent reputation, but will probably still be remembered for the deals he couldn't deliver: most obviously his 2008 tilt at Rio Tinto, plus a 2010 hostile bid for Potash Corp.
Still, as the final days of Kloppers were partly overshadowed by write-downs on acquisitions completed, he may have been fortunate to fail with the big two.
Overpaying for boomtime takeovers is having a huge effect on the makeup of mining boardrooms, with Anglo American replacing Cynthia Carroll with Mark Cutifani and Rio Tinto promoting Sam Walsh to take over from Tom Albanese.
HSBC pointed out earlier this month that all the major mining bosses had been in place for longer than five years – so change was likely. It's happening.
In the world of commodities, investors have long talked of cycles. This is the latest. The sector is under new management.
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