FX CURRENCY WATCH
that we had a weak GBP, in fact it was a case that we had a very strong dollar. UK economic growth in 1985 was at 4.2%, a strong number. However, in Ronald Reagan’s first term in office, he had introduced massive tax cuts and increased public spending to boost the US economy, which it did and that resulted in the Federal Reserve raising interest rates which then saw a surge in foreign investors putting their money into the US which sent the USD skyrocketing . Tis had a huge impact on the US exporting industry which was under so much strain because of the higher USD that finance ministers from the US, the UK, Japan, West Germany and France got together and agreed to devalue the US dollar.
It
worked and within two years the dollar had fallen by 40%. Te sterling till recently, never looked back.
Highs- November 2007
In the early 2000’s the UK was still riding the wave of cool Britannia. Te UK’s financial sector was booming along with the UK’s economy. With growing optimism and lower inflation, the pound rose from $1.40 in 2002 to $2.11
12 FX TRADER MAGAZINE April - June 2017
when UK was flourishing, but like the famous saying used by almost all analysts it was a case of “boom, boom, bust”. And the “bust” happened when the financial crisis started in 2008 which saw both the UK economy and the pound collapse.
The Future?
Tere is one thing for sure. Te UK will be leaving the EU. What deal will be made or if indeed if a deal will be
against the USD in November 2007. US was invaded by British tourists who took full advantage of the exchange rate to buy countless products. In fact, I can even remember a famous American standup comedian making a joke that when he visited the UK he went to exchange $100 at Heathrow and he got back a loaf of bread. It really was a time
made no one knows. And as many will speculate on how the sterling will react both during negotiations and once it is all finished, no one can really know for sure as we are in totally unknown territory.
But instead of market talk universally signaling doom and gloom for the world’s oldest currency like there was on the back of the Brexit vote, there is now a split in opinions on where the GBP is heading in the next 12 months.
There is now a split in opinions on where the GBP is heading in the next 12 months
Firstly, if we look at the views of the bears who some believe that parity with the USD and EUR could still happen for the first time ever. The feeling is, that with the number of elections in Europe this
year with particular
focus on the French elections the EU would be forced to take a tough stance in negotiations with the UK causing a hard Brexit. The belief here is that since the Brexit vote, the sterling has become what is known as a political currency prone more to objections by investors to government policies.
Tere is also concern that the UK
Government negotiating strategy with the EU is extremely risky, with the Prime
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