Sterling has continued to perform well and today has risen further, hitting €1.1470 vs the Euro, and $1.2470 vs the US Dollar. Yesterday morning GBP/EUR was at €1.11 so this pair has recent by 3% since yesterday, and the Pound is now the best performing major currency over the last 7 days
Why is the Pound rising?
Pick up a copy of the Guardian or read the BBC website, and you would be forgiven for thinking that the UK has almost no economic future outside of the EU, and in voting to leave has relegated itself to a minor economy, no longer a major economy with clout on the world stage. However when you step away from the left wing press, you see a different story. The UK economy is proving resilient and performing very well in the wake of the vote to leave the EU. The UK economy is the 5th largest in the world, and there is no reason that the Pound was weak other than uncertainty in the financial markets causing investors to sell of the Pound. Now however, the Pound is bouncing back, and it seems that Trump in the White House is helping the Pound.
As Reuters pointed out in a recent article, perhaps the UK Brexit vote is no longer being viewed as an ‘outlier’ vote, and perhaps the beginning of a shift towards more populist voting. Consider then that Italy has a referendum next month, and Germany and France have elections next year, and there is a chance that there will be similar populist votes in these elections in the EU, which may weaken the Euro. The EU has it’s own problems, with almost zero growth and youth unemployment in some countries at a staggering 50%. What you are also unlikely to hear in the liberal press is that since the introduction of the Euro, our trade with the EU has fallen from 61% to 43% and continues to fall. The majority of our trade is outside of the EU then, and that is only likely to increase as soon as we are able to make trade deals with the USA, China and other nations, something we are presently unable to do under EU rules. The EU share of GDP has been steadily falling and the IMF forecast it will be 10% by the end of the decade.
Perhaps then a future outside of the EU will be positive for Great Britain, however the road is a long one, and most forecasts still suggest that the Pound will weaken when article 50 is invoked, so don’t expect these gains to continue.
In the here and now however, there are much better opportunities for those that need to convert Sterling to Euros or indeed other major international currencies. Maybe rates will rise further, but there’s no way to second guess movements in the currency markets. Strategists at HSBC are still predicting that GBP/USD rates will drop to $1.10 next year, and most analysts still seem to be predicting further weakness for the Pound.
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