Not necessarily

Article Abstract:

Pound sterling may not drop in relation to the German mark, according to some economists. UK interest rates could be raised by as much as German interest rates if the Bank of England is concerned about inflationary pressures from sources such as lower unemployment, rising consumer spending and an increase in the money supply. Currencies may be more sensitive to concern about inflation than interest rates and there could be concern about German inflation that may push down the value of the German mark.

Germany, Mark (Germany)

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Fair value?

Article Abstract:

The value of pound sterling has become more important with the increased possibility of the United Kingdom joining European monetary union (Emu). Depression would result from joining Emu with the pound at too high a value. A high value tends to be linked to trade deficits and unemployment, though this is not the case in 1997 when there is likely to be a trade surplus and unemployment has dropped. Fair value may not be constant and this is a problem if rates are to be set permanently.

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Why sterling may not be overvalued

Article Abstract:

The United Kingdom has a current account surplus, high demand and low inflation, and this could mean that pound sterling is not overvalued. Purchasing power parity indicates that the pound could be overvalued, but this may not be the best indicator. A current account deficit is likely in 1998, but lower unemployment is also likely. The pound is likely to drop in 1999 and there could be problems with both the current account balance and unemployment.

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