During the latter part of 2022, the British Pound was continually the recipient of the proverbial ‘wooden spoon’ as it declined consistently over a series of months against the US Dollar.
That was a very interesting set of market conditions, bearing in mind that the US economy was struggling with the national debt, whereas the British economy was less encumbered, but had been buckling under high inflation and a cost of living crisis, which was far less of a concern across the United States, which by the last quarter of 2022, had got its inflation level down to almost half that of Britain.
However, the downward spiral that the British Pound experienced last year has long since stopped, and now things are quite different.
Today, the British Pound has reached a 1-month high point against the US Dollar and is at its second-highest value in 12 months at the mid-1.26 range.
Confidence in the overall competitiveness of the British economy varies, with many considering that the woes of Brexit have added extra taxes and logistical costs, as well as caused the country to wave goodbye to some of its most skilled staff, and others thinking that it is possible to go it alone and that the City of London’s global fiscal powerhouse trounces absolutely everything this side of the Atlantic to the extent that Britain will always be ahead fiscally.
There is no actual event that could have caused an acceleration of the value of the Pound over the US Dollar, only items which exist as a backdrop, such as the debt-to-GDP ratio in the United States being extremely high and despite the country almost defaulting on its commitments due to having more debt than its government can service, raising the debt ceiling instead of addressing the cause of the spiralling debt.
Other than that, Britain is finally free of Boris Johnson, the former Prime Minister who remained in a government position until his high-profile resignation last week. Mr Johnson’s economic catastrophes included lockdowns, expensive furlough schemes, highly costly government contracts handed to developers of such questionable things as ‘track and trace’ systems, and a high level of enthusiasm for funding a geopolitical conflict in Eastern Europe.
His resignation may be viewed as the end of a very expensive era. However, there are those to whom this is not a surprise; therefore, it should perhaps not have such a positive impact on the Pound.
Analysts across the City of London are citing very broad reasons for this sudden strength, including the overall sentiment regarding Bank of England rate hikes.
What sentiment exactly? Rate hikes have been going on for some time now and have often had a detrimental effect on the value of the Pound against the Dollar.
Whatever the reason, the British Pound is now the best-performing currency in the G10, and that is some accolade indeed.
Is it a blip, or is this the direction for the foreseeable future?
* FXOpen International, Innovative Broker of 2022, according to the IAFT
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.