The pound has fallen to record lows in the last year triggering huge investment into the UK. It has also created some excellent selling opportunities for anyone holding a foreign currency to buy the pound following say a business transaction or overseas property sale. 100,000 Euros sold today would get you £15,000 more than before the Referendum. 100,000 US dollars sold today would get £11,000 more than before the vote. Such swings are once in a generation events that occur every decade or so. Think the financial crisis of 2007-8 or the ‘Black Wednesday’ in 1992. So has the recent demise of sterling hit a bottom yet or is there further pain for the pound to come?
I am now beginning to feel that the pound has been oversold and that there is now from an investors point of view more reasons to be positive about the pound than negative. Whilst Brexit will continue to be a weight around the neck of the pound I cannot help but feel the strong employment situation in the UK and improved global economic conditions are reasons to be more positive for the future. With UK Unemployment falling to its lowest since 1975 and us having avoided recession or worse since the vote, I think there are many reasons that the UK’s highly skilled flexible economy will drive us through what are clearly going to be a few challenging years.
Brexit is taking shape and it is clear we are going to engage some form of transitional phase that retains as much trade as possible with Europe. Already we are seeing great concessions on Immigration, arguably one of the most sensitive issues of the vote. This leads me to predict we will have a very pro – trade, pro – ‘European’ Brexit. All of this will ultimately be very good for the pound at some point and I do feel as this news starts to filter through the pound will rise.
Remember GBPEUR is at 1.10 partly because the Euro is so strong. Although Euro weakness could be on the horizon as the European Central Bank released commentary yesterday that they fear a strong Euro. I think this pair could now gradually rise as the ECB scales back it’s stronger rhetoric and the weakness on sterling stimulates investor interest.
GBPUSD is at 1.28 because the US have been raising interest rates and there had previously been a very positive view of the Trump administration from a business and financial market perspective. This is gently being unwound and I do believe a more resilient pound will now start to gently chip away at the US dollar as confidence in Trump continues to decline.
Once in a generational events like Brexit, Black Wednesday and the last financial crisis create great opportunities that do not happen very often. Getting exact timing with these situation is never an exact science but with the pound currently touching close to its lowest points against many currencies whilst progress is being made in Brexit talks, suggests to me further dramatic GBP weakness is now much less likely.
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