All Things Considered; the Pound is doing rather well. The Pound enters the last week of November at: –
- A month high against the Euro.
- A 17-week high against the US Dollar.
- At the top end of the trading range since March against the Aussie Dollar; and
- At its highest level against the Canadian Dollar since May.
It’s All About Perspective
Given where we are economically in the UK with the Bank of England warning the UK is facing its longest recession on record at two years which could nearly knock 3% off UK GDP whilst carrying the highest tax burden since the second world war; with the highest interest rates seen since 2009 and with the biggest drop in UK living standards since 1956, why is the Pound doing well?
In one sentence, the UK is far from alone in dealing with the headwinds caused by the pandemic; the war in the Ukraine, now the biggest land war in Europe since 1945; multi-decade high rates of inflation; rising interest rates and the end of the easy money cycle in place since the credit crunch caused by the collapse of Lehman Brothers in 2008.
The Pound’s Recovery Against The Dollar Is Worthy Of Note
The move against the US Dollar is particularly noticeable given the Pound crashed to a record low against the greenback as recently as 28 September and follows the release of the minutes from the last Federal Reserve rate setting meeting.
The Fed has tightened US monetary policy at its fastest pace since the early 1980’s with four back-to-back 0.75% rate rises but has now opened the door to a 0.5% rate rise at their next meeting on 14 December after a noticeable slowdown in the headline US rate of inflation with the minutes of the meeting showing that a “substantial majority” of policymakers agreed it would “likely soon be appropriate” to slow the pace of interest rate increases.
The Geo-Political Outlook That Remains Highly Volatile: –
- China remains committed to a ‘zero-Covid’ strategy yet hit a record number of daily Covid infections last week. Analysts warn that nearly 20% of China’s economy, the second biggest in the world is negatively affected by the lockdowns and predict the Chinese economy will only fully reopen in the third quarter of 2023, causing long term disruption to the global supply chain.
- The war in the Ukraine rumbles on with heavy Russian shelling of the capital Kyiv knocking out power and water supplies with temperatures falling below zero in retaliation at the Ukraine retaking the major city of Kherson.
- The war continues to drive migrants and money out of Russia. Georgia, Armenia, and Turkey have all experienced an economic boom amid an influx of Russian talent and wealth.
Time For Some Good News
- Last year was the best year on record for UK trade with the EU and all outside of the single market.
- In the 12 months to September, exports to Sweden rose by 42%; by over 32% to Ireland; by 30% to Belgium and by over 28% to France.
- In the 12 months to June, UK exports of both goods and services to our top Commonwealth export markets shows an increase of over 43% in exports to India; 19% to Singapore and over 15% to Canada.
- Against all expectations, UK retail sales topped all analyst estimates across all sectors including food and UK consumer confidence data also rose in November.
- London retained its second place ranking behind New York in the 2022 Global Financial Centre Index. Paris ranked 11th and Frankfurt 16th.
Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.
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This week’s quote is from Franklin Delano Roosevelt
“The only thing we have to fear is fear itself”