Pounded? A sterling excuse for a lower currency.
Ever since June the 23rd’s seismic shock, Remainers and Brexiteers, the Roundheads and Cavaliers de nos jours, have been hitting each other with statistics.
Broadly speaking you can take your choice. For every crumbling economic indicator, there’s another one doing OK, thanks. But there’s one metric which leaves Brexiteers floundering.
The pound has been clobbered since the UK stunned the world. No getting away from it.
A quid bought you nearly $1.50 on June the 22nd. Now, well not so much. $1.28 if you’re lucky. In the usually sedate world of developed market currency trading that’s a mighty collapse.
Now some of this is readily explicable. Foreign exchange traders, bless ‘em, are no more immune to a set of bookmakers’ odds than the rest of us. Indeed I’ve had the pleasure of knowing quite a few and I’ll be honest: bookmakers’ odds are a big part of their lives.
So, when those odds suggested that Remain was a nailed-on certainty, our heroes all bought the pound. Small wonder it dived like a gannet after mackerel when those odds were found wanting.
The pound was probably a shade overvalued before the vote anyway. $1.35-$140 might have been a better reflection of the UK economy compared to the US. Sterling was bid higher because it was viewed as a “haven” from global economic turmoil. Now, again, not so much.
A crowded one way bet beforehand, and a lost haven premium after. The pound’s fall is looking a little more explicable. Then there was the Bank of England’s interest rate cut. Another reason for international investors to shun the UK’s miserable interest rates and head off in search of better returns somewhere else.
there is a good chance that the Bank of England sees some blessing in disguise here
But consider this.
Two developed-market central banks have cut interest rates this month, with the express aim of weakening their currencies. Australia and New Zealand have both admitted that their dollars’ relative strength was behind the record-low rates in force in both Canberra and Wellington.
You’re not supposed to admit this. The gentleman’s agreement in the world of currencies means we don’t. Civilised, developed economies do not engage in “races to the bottom” in the currency market with our friends and allies, seeking grubby commercial advantage.
Except that of course, we do. And in these post-crisis days we really do it with a vengeance. Look at the negative interest rates prevailing in Japan and the eurozone- aimed at jump starting their economies.
Speak it softly, but there is a good chance that the Bank of England sees some blessing in disguise here. The pound is lower, UK exports are more competitive and Brexit offers the perfect cover.
Weakening the currency? Us? Don’t be absurd.
There’s no getting away from it. Sterling has had an awful time. But, in providing the UK with the lower currency that other countries have been striving for themselves, we may yet come to love it.
Keep an eye on the export numbers for the next few months.
About the author
Born and raised in Swansea West, one of the safest Labour seats in the country, David is perhaps unsurprisingly a High-Tory, Euroskeptic Royalist Libertarian with an unhealthy adoration for Ronald Reagan and Margaret Thatcher. As a result he is seldom pleased by anything that ever happens, and always on the verge of quitting the whole jamboree. A former Special Writer at the Wall Street Journal, he knew the crash was coming when he saw a piece about Louis XVI reproduction furniture "for your Winnebago."
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