By Lauren Buckner
Despite the explosion of the Omicron covid variant in the UK through December and the impact on many people’s Christmas and New Year festivities, GBP had a positive end to 2021 which has continued through January so far.
Boosted by an interest rate rise to 0.25% in December, the pound has continued to gather momentum and recently tested the golden 1.20 mark versus the Euro – close to a two year high, and 3 month highs against the USD around the 1.37 mark. As the UK economy continues to outperform most other countries through its pandemic ‘recovery’ (GDP returning to its pre-pandemic levels in November) the anticipation of a second interest rate rise in February to 0.5% continues to hold the pound steady, particularly against the Euro.
Inflationary pressures caused by higher energy prices, supply chain issues and Brexit, have seen prices rising at their fastest pace in more than 30 years and the Bank of England will need to spring to action to control spending through rising interest rates. All eyes are on indications from the BofE over the pace of interest rate rises throughout the year currently expected to be at 0.75% by May and 1.25% by November. Although not overly welcome news for consumers with further pressures on their purse and wage price rises lagging horribly behind at around 1% in real terms, this does make the Pound more attractive to investors and helps bolster its value – our Sterling sellers will be pleased but perhaps a cautionary note for anyone wanting to buy the Pound throughout this year.
The uncertainty, (or the bad) and unpredictable event in our eyeline is increasing tensions in Ukraine with over 120,000 Russian troops sat on the border and accusations of plots to install a pro-Russian leader in the country. This has seen a series of falls in most global investment markets as we see a move to safer assets – markets do not like uncertainty. This has led to the USD strengthening over 2 cents against the Pound and pulling its value back against the euro, the traditional ‘safe bet’ in currency markets. It is impossible to predict how this may play out and the overall impact it may have on exchange rates and should be monitored.
The ugly comes in the form of our PM (metaphorically) and continued releases around the behaviour at No.10 Downing Street through the UK lockdown. Boris Johnson continues to face huge criticism for several Downing Street gatherings and whispers of a vote of no-confidence from his party. A lack of leadership, or political uncertainty is rarely a positive for that country’s currency.
Yesterday saw the announcement from the Metropolitan Police that they will investigate the gatherings held by No.10 which contravene covid regulations – a welcome step in for many. However, the reality is that could delay the release of the Sue Gray report in to the incidents. Last night however the parliamentary rumour mill suggested we could see the published report as early as today after the Met confirmed they held no objection to its release. Yet another bumpy week for Boris Johnson beckons…
GBP has had a very positive start to the year and at face value this could continue however, with political unrest and global Nato issues with Russia also thrown in to the melting pot, the continued strengthening of the Pound is far from a given. Please get in touch with us as soon as possible to discuss upcoming requirements and what we can do to help.