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In Form Pound Set To Remain Strong

Published 09/24/2015, 06:45 AM
Updated 07/09/2023, 06:31 AM

The pound is looking good against many of the world’s major currencies and it looks like the good times are set to stay – for now. Good news if you’re buying property abroad.

Sterling is in form. Like Mo Farah or Jess Ennis-Hill, the pound has been in world-beating form over the past few months. This year has seen it push to fresh seven year highs against the euro as well as the dollars of Australia, New Zealand and Canada.

One major currency missing from that list is the US dollar. Like two heavyweight boxers dancing round each other, in isolation the GBP and the USD can look strong but pitted against each other, they tend to cancel each other out. Sterling is around 7% lower against the dollar over the past 12 months which is hardly a collapse but does make home purchases that bit more expensive than they were a year ago. The reason for the USD strength is simple; interest rates.

Markets have almost unanimously identified the US’s Federal Reserve as the central bank most likely to raise interest rates first as part of the rebuilding of its economy. In all likelihood, the Bank of England may very well be close behind.

Sterling is strong for a number of reasons. News from the UK economy is broadly positive at the moment; employment and wages are increasing and inflation is low allowing consumers to do what they do best. Corporate profits also seem to be increasing. Elsewhere in the ‘developed’ world the news is not so good.

The focus in Europe is still on Greece and the danger that it poses to the Eurozone experiment. While recent progress means that immediate financing concerns have ceased to become an issue, longer term debt sustainability remains a very real concern within the terms of the bailout.

The European economy remains in a very fragile state with investment low, unemployment high, and industry quiet. Policies from the European Central Bank to stimulate the economy seem to be slowly working but the transformation will not happen overnight. Euro is likely to remain weak against the pound for a while yet, although I think another 10% devaluation against the pound over the next 12 months is unlikely.

The real pain through 2015 has been felt by currencies that are closely tied to commodities, particularly oil. The Canadian dollar has lost close to 12% versus the pound since September last year as oil prices have crumbled. If the stuff you are digging out of the ground is worth less, then you are worth less.

Similar movements and a 17% devaluation has been seen by the Australian dollar as tin and iron ore exports have slumped as a result of a wobbling Chinese economy.

The past year has been great for Brits looking to buy that bolthole in Bordeaux, Banff, or Brisbane, or wherever the wind takes you. For now, the next year looks pretty good too.

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