Chapter 94 Challenging Sterling

Over the past few days, a wave of speculative selling has raged across European markets, starting with the Finnish mark, which, after depleting its foreign exchange reserves, announced that it was abandoning the peg to the European currency unit, allowing the Finnish mark to trade on the market. Free floating, the Finnish mark depreciated by nearly 15% on this day, and foreign exchange traders made profits almost in the blink of an eye.

The next day, the capital was targeted at the Swedish Krona again. Under the urgent situation, the Swedish government announced overnight that it would raise the interest rate to an unprecedented height of 75%. Such an interest rate is enough to make the capital flow back to the domestic market . Seeing that the attack was fruitless, these capitals, which rely on advanced electronic communication systems to operate, turned to attack the Italian lira.

  Italy, unlike Finland, has not officially become a member of the ERM, so it cannot count on help from other European Central Banks when speculators are targeting it. But the situation in Italy is different. Its depreciation means that the members of the exchange rate mechanism have been beaten to pieces by the market for the first time, and the Italian central bank has the right to obtain support from the powerful German central bank. In fact, in the past week, Italy has borrowed about $36 billion worth of marks from Germany. Although this intervention is unprecedented, it still fails.

  The British side is another scene.

When visiting officials from Italy and Germany were discussing the depreciation of the lira, the British Chancellor of the Exchequer, Lamont, still attended the event according to the itinerary he had arranged long ago. Even in the description of the British media, Lamont was even a little complacent, because he knew German interest rates are about to fall.

  As part of the Italian lira depreciation agreement, Deutsche Bank will announce on Monday (14th) that it will cut interest rates by 0.25 percentage points, which will increase the value of the pound in disguise.

In fact, in the eyes of most analysts and financiers, there is no comparison between Italy and the UK at all. Italy is the most chaotic rich country in Europe, and its domestic political structure and economic system cannot be compared with that of the UK. It is a country still led by the Conservative Party, which has transformed the country's economic situation in the previous decade.

In addition, since August, the pressure on the currency value caused by the sell-off of the pound in the market has also been successfully resolved by the Bank of England. In addition to the huge foreign exchange reserves, the UK announced in early September that it would borrow 10 billion euros. currency unit (£7.25 billion, $14 billion) to improve the ability to defend the pound. In this way, the funds available to the Bank of England exceeded $50 billion.

  What Lamont didn’t expect was that the money they prepared was only equivalent to the amount prepared by Quantum Fund’s family in sterling. In addition to Quantum Fund, there were countless other hedge funds and foreign exchange traders gearing up to sell sterling.

On Monday, September 14, 1992, when the London foreign exchange market began to operate, it received news that Germany would cut interest rates, and the English market also bought sterling equivalent to US$700 million to maintain the currency value , making the exchange rate of the pound rise slightly on this day, and everything looks good.

   But this gave speculators more courage, because they saw a worst result. The result is that even with the help of the Bundesbank, the currency sterling has only risen a little, which means they can sell the pound as hard as they can, because the worst result is only a little rise.

   As a result, the next day, the wave of selling sterling came as promised. As a result, more than a billion dollars were spent to keep the pound at 2.7850, which is only 70 basis points away from 2.7780.

   At the close of the day, Zhong Shi also sold half of the pound in his hand.

After showing HSBC a huge cash reserve and related asset certificates, Zhong Shi easily borrowed sterling worth four billion U.S. dollars. The money was in Zhong Yi's name, but Zhong Shi had already obtained it. His authorization agreement, in fact, in order to prevent this cousin from treason and embezzlement of property in the future, when he authorized the operation of funds in the name of Zhongyi a few years ago, there were also clauses to prevent embezzlement in the authorization letter.

   These pounds have been sold to foreign exchange dealers at various prices in the past few days, and now all Zhongshi needs is to buy the same amount of pounds in the market at the right time to pay back to the bank.

  It is really rare for individuals to participate in the foreign exchange market and have such a large position. Therefore, HSBC has provided great convenience in all aspects.

On the 15th, Schlesinger's remarks were published in interviews with the Wall Street Journal and the German newspaper Handelsblatt, in which Schlesinger declared that a broad adjustment of European currencies would be better than a separate adjustment of the lira it is good.

  The meaning is very obvious, that is to say, not only the lira needs to be adjusted, but other currencies must also be adjusted. So whoever needs to adjust must first be the British pound, which is on the cusp of the storm.

   Lamont was shocked. He immediately called the German side overnight with Pemberton, the governor of the Bank of England, hoping that the German side would issue a statement stating that this interview only represented Schlesinger himself or veto the news, but the German side refused.

   Lamont knows very well that Bass Schlesinger's speech on interest rates has already caused speculators to sell the Italian lira frantically. Now that he said so, it will cause speculators to frenziedly attack the pound when the market opens tomorrow.

  In fact, in the global foreign exchange market, this news has caused an uproar. Everyone knows that Germany has abandoned the United Kingdom.

  Zhong Shi was woken up by a phone call at seven o'clock in the evening. It was a call from the United States. After Zhong Yi in New Jersey saw the news, he called Zhong Shi immediately.

   "What does Germany's statement like this mean?" Zhong Yi asked with a slap in the face as soon as the phone was connected. During Zhong Shi's trip to Europe, he kept in touch with Zhong Yi from the United States.

"What the **** did he say?" Zhong Shi, who had just woken up, was a little confused. He had been staying in the headquarters of HSBC UK for the past few days, basically not going anywhere. Even so, he felt very tired, so Go to bed early.

   "What he meant was to make a large-scale adjustment to the European exchange rate system." Zhong Yi said in a hurry. His mentor at Princeton was an expert in econometrics, an economist named Christopher Sims.

It stands to reason that macroeconometrics and the exchange rate system of the international economy are not in the same direction, but recently the European exchange rate system is so hot that it has attracted the attention of almost all economists in the world. At Princeton, professors and students often discuss similar issues here. The problem.

   "It's probably forcing the pound to depreciate!" Zhong Shi said lazily. But at the next moment, he was awakened by his own words, yes, forcing the devaluation of the pound, is this how the depreciation of the pound in the previous life came about?

  Thinking of this, Zhong Shi couldn't fall asleep anymore, and after a few perfunctory words, he quickly hung up the phone. He then called HSBC's trading desk and instructed them to sell the pound all over the world at a floor price of 2.7780.

   As mentioned above, the foreign exchange market is a 24-hour market. Except in London, there are pound sterling transactions in other places. Of course, the biggest buyer is the Bank of England.

  The foreign exchange trading department of HSBC did not dare to be careless after receiving Zhongshi's instructions, and quickly called them to inform them that they would sell Zhongshi's pound with all their strength in the United States, RB, Hong Kong and other departments.

Meanwhile, in the offices of the Quantum Fund on Seventh Avenue on Wall Street, Druckenmiller's first reaction was that Schlesinger would be happy to see Britain excluded from the ERM, and Germany's central bank had no intention of helping Weak neighbors have another hand, which means a devaluation of the pound is inevitable.

  Drukenmiller, who was extremely excited, walked into Soros's office and discussed the next move with his boss who had just returned from England a few days ago.

   "I will start to gradually increase my position until the pound is finally broken." Druckenmiller walked back and forth in the huge office, his eyes shining with excitement.

   "What?" Soros seemed a little unresponsive, his old face full of puzzlement. He objected: "That doesn't make sense!"

   "What do you mean?" Druckenmiller seemed to have been poured cold water over his head, and immediately extinguished his enthusiasm. He looked at his boss suspiciously, waiting for the next explanation.

"If the news reports are not wrong, then we will be in a situation where we are almost sure to win, so why are you still hesitating, operate with all your strength, bet all the positions, and directly increase all of our positions, wouldn't it be better!" Suo Ross said firmly. "Go all out!"

  Hearing what the boss said, Druckenmiller laughed dumbfounded. He still doesn't know his boss very well, which in this case is definitely SHOWHAND according to his gambler personality. (Gambling term meaning bet all on.)

   Time is running out and the US market is not closed yet. This time Druckenmiller and Soros decided to go it alone, calling the banks that were willing to do business with them. The Bank of England must buy sterling at 2.7780 to keep sterling in ERS, but this is only valid during London trading hours. At this time, the trading time in London has passed, and they must find other buyers.

  As the large sales orders of Zhongshi and Quantum Fund appeared, the banks that received a large number of sales orders also began to remind their currency traders, and they also began to sell the pound. In this way, the news that the pound was about to collapse quickly spread, forming a wave of selling pounds around the world.

   Soon, there will be no buyers in the market.

  Because the sale was timely and at the lowest price, the British pound of the bell stone was quickly sold. (Thank you book friends for habitually waiting for more ~~ rewards! I hope more book friends can support this book. Your support is my motivation. I ask for Sanjiang tickets and more recommended collections. Thank you very much!)

  (end of this chapter)