Covered the recent rebound in the U.K. Pound on #r4today with @FelicityHannah - back >1.22 GBPUSD. Some brief observations. The most reliable buy signal for GBP is when broker notes entitled “parity looms” or “£ is EM currency” hit inbox. Far better than any fundamental analysis!
I’m only being slightly flippant as trading positioning/ sentiment is a far better predictive variable than any rate spread, or macro trend analysis when backtestedX A lot of guff gets written and spoken about the Pound. There are some deeper trends though…
The longer term decline in its trade weighted value has three drivers. 1) U.K. economy as a modestly shrinking % of global economy makes GBP asset ownership less essential. 2) Post GFC shrinking of UK financial sector 3) Brexit reducing expected size/ efficiency of U.K. economy
But these factors shouldn’t totally mask news from recent weeks that has seen the #dullnessdividend support U.K. assets. But bigger influence on GBPUSD has been signs US interest rates will rise at a slower rate in 2023. This has taken wind out of sails of v strong dollar
Sterling at this level will dampen inflation in 2023 - compared to counterfactual of Sterling’s weak value in October. This may be difficult to spot in headline data but terms of trade improvement is a big influence given large U.K. trade deficit. Some comfort for U.K. consumer
• • •
Missing some Tweet in this thread? You can try to
force a refresh
